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Home My WebLink AboutAK Taiwan energy dicussion 2005CONTENTS AGENDA TAIWAN -ALASKA ANRTL -AIDEA SEPTEMBER 8"2005 MEETING at ALYESKA ALASKA BELUGA 80,000 BBL/D CTL PROJECT OVERVIEW ALASKA BELUGA CTL PROJECT SHORT PRESENTATION SLIDES a Republic of China Letter IDC-2005-058 ANRTL Response Dated May 21,2005 Republic of China Letter IDC-2005-083 ANRTL Response Dated July 13,2005 e.etyUSaverve reavy INDEX®DIVIDERS AGENDA Oo TAIWAN -ALASKA ANRTL -AIDEA | | SEPTEMBER 8"2005 oe tye=LE Be .MEETING at ALYESKAheeAeeor ALASKA BELUGA 80,000 BBL/D CTL PROJECT OVERVIEW ALASKA BELUGA CTL PROJECT SHORT PRESENTATION SLIDES Republic of China Letter IDC-2005-058 ANRTL Response Dated May 21,2005 Republic of China Letter IDC-2005-083 ANRTL Response Dated July 13,2005 Agenda for the September 8,2005 meeting "Alaska Coal to Liquids” Co-Chairs Mr.Seng-Chang Hu,Chairman of the Council for Economic Planning and Development, Executive Yaun Mr.Theodore M.H.Huang,Chairman,Chinese National Association of Industry and Commerce Mr.Mike Barry Chairman of the Board,Alaska Industrial Development &Export Authority e WELCOME AND INTRODUCTORY REMARKS -Mr.Barry e WELCOME -H.E.Mr.Ning-Hsiang Kang,Sr.Adviser to President Chen e WELCOME -H.E.Mr.Li-pei Wu,Sr.Adviser to President Chen e WELCOME AND INTRODUCTORY REMARKS --Mr.Hu /Mr.Huang e Introduction by Attendees: e Taiwan Ad Hoc Committee discussion of the Alaska Beluga CTL proposal e The Alaska Beluga CTL Project Overview ANGTL e Questions and Answers -ALL o Alaska coal resources o World F-T and gasification technology providers o Local infrastructure -electric,natural gas,water,roads,export o US West Coast Diesel Market o Taiwan fuel markets o Far East fuel markets o Local fuel and electric markets o US Federal Support o Alaska Support e Way Forward e Conclusions e Closing remarks -Mr.Barry /H.E.Mr.Wu/H.E.Mr.Kang /Mr.Hu /Mr.Huang PACIFIC RIM ENERGY SUPPLY TAIWAN IRR RANGING FROM 1.3%TO 37% ALASKA COOK INLET COAL "BILLIONS OF BARRELS” (Equivalent to a 6 Billion Barrel Oil Field) PROVEN RESERVES 100 +YEARS SUPPLY PROVEN F-T TECHNOLOGY FIXED PRICE FOR UP TO 20 YEARS TRANSPORTATION FUELS FROM COAL LONG TERM PRICE AND SUPPLY HEDGE ANRTL -AIDEA x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY THE IDEA: Alaska Natural Resources To Liquids Company,ANRTL proposes to build a mine mouth 70,000 -80,000 barrel per day coal to liquids plant (CTL)on the western shores of Alaska's Cook Inlet adjacent to the Beluga coal field.The CTL plant will use proven gasification and Fischer- Tropsch (F-T)technology to convert the approximate 1.4 billion tons of coal reserves into 2.1 billion barrels of F-T fuels.The estimated cost of the CTL plant will be $5 billion dollars and take 5 years to bring online.The F-T fuels will be marketed throughout the Pacific Rim to the highest net back markets.Financing will be through a combination of a $1.5 billion subordinate interest only loan from a Pacific Rim Nation,$500 million in equity investment and a $3 billion commercial loan. The Pacific Rim Nation investment will allow the CTL plant to sell F-T fuels competitively with crude derived products based upon mid $30's crude oil while giving the CTL Equity Owners a 25%IRR.In exchange for reducing the risk of lower crude oil prices,the Pacific Rim Nation will receive 90%of the upside in market value until it recovers its $1.5 billion investment plus back-in for a 45%ownership at this date. ANRTL will put together a CTL team to provide equity investment,project development, engineering oversight,CTL plant operation and F-T fuels marketing. Beluga PowerMiningLimitPlants/f Oo Coal Transport ConveyorZpo coltanam F-T PlantatBeluga North Foreland 7 Industrial Development N c 'i oe oe :Kilometer |172 1 "Sotimeca,UTERO |Soli SoaraEeBoy>; Pd 4.aN ,3 Cook inlet RH a al x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY Executive Overview A National Energy Plan to invest in the production of ultra clean transportation fuels and petrochemical feed stocks from coal in Alaska for export to Pacific Rim Markets Many Nations today are faced with fierce competition for crude oil,natural gas and refined products as world demand continues to grow.Some Nations invest in foreign exploration programs through state owned or controlled energy companies.Exploration programs are costly, carry enormous risk,take years to bring on line if and when successful and always potentially face future political uncertainty within a host nation. These national equity investments seek crude oil and natural gas reserves that can be transported from the host nation to the equity nation to supply its energy infrastructure.In the case of crude oil it must be further refined to create a finished transportation fuel and petrochemical feed stock. Taiwan,lacking domestic crude oil,natural gas or coal reserves is one of those nations investing in exploration and energy development throughout the world to secure reliable energy for its growth and national security. We would like to present Taiwan with a different prospective on obtaining long term transportation fuels and petrochemical feed stocks from proven reserves,using proven technology,from a politically stable nation,on the ocean trade routes its vessels ply every day for marketing these premium fuels throughout the Pacific Rim.. Coal to liquids (CTL)is a well established technology.First developed by the Germans it was commercialized by South Africa to reduce the amount of imported crude oil.This same technology is being exploited by major oil companies to build over 500,000 bbl/d of new gas to liquids plants in Qatar today. Alaska is blessed with billions of tons of recoverable coal reserves.One field,the West Cook Inlet Beluga-Chuitna coal field,located near the tide water,40 miles southwest from Anchorage has over 1.4 billion tons of recoverable coal reserves.Utilizing existing CTL technology,these proven coal reserves can be converted into more than 2.1 billion barrels of ultra clean zero sulfur Fischer-Tropsch (F-T)transportation fuels and petrochemical feed stock naphtha. x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY At today's crude oil prices,these F-T fuels are competitively priced compared to crude oil based diesel,gasoline and petrochemical feed stocks.At $30/barrel crude they are not.However,once the capital costs of a CTL plant are recovered,F-T fuels can compete with crude oil based products delivered to Pacific Rim markets in the $20/barrel range or lower according to Sasol,as the operating costs of a CTL plant are not much different from a crude oil refinery. THE ENERGY OPPORTUNITY We propose that Taiwan invest $1.5 billion dollars in a $5 billion 70,000 -80,000 bbl/d CTL plant located next to the West Cook Inlet Beluga-Chuitna coal field.In exchange for the investment,the Alaska Beluga CTL plant owners would agree to: e Pay Taiwan an interest only payment of $87 million per year up to 20 years -$1.745 billion; e 90%of the difference in price or market savings achieved between the fixed price of the F-T diesel and naphtha and the prevailing market price; e Give Taiwan the option to purchase F-T diesel and naphtha (approximately 550 million barrels)for up to 20 years -$30 billion for sale to the best market; e Provide Taiwan with 45%ownership in the CTL plant after recovering its $1.5 billion. Based upon a given set of economic parameters the first year price of F-T diesel would be $1.17/gallon with a $5/bbl credit to transport to Pacific Rim markets.This price is some 98¢/gallon lower than the August 2005,California rack/spot diesel price of $2.15/gallon and 25¢/gallon lower than the Pacific Northwest average 2004 wholesale price for diesel.Taiwan could receive F-T diesel at an effective average price of $1.28/gallon over the 20 year period; some 15¢below the 2004 average and 98¢/gallon below August's CARB price.Each 10¢/gallon below market price is worth $110 million per year.The F-T naphtha would start at $1/gallon with a $4/bbl credit for transport to a Pacific Rim market and escalate at 1%/year for 20 years. Taiwan recovers its investment in the CTL plant,has a guaranteed right to purchase a highly prized,environmentally friendly,and totally compatible with its existing transportation infrastructure,non-petroleum fuel at a fixed price and backs in for a 45%CTL plant ownership once it recovers its initial $1.5 billion investment. A no risk 100 +year ENERGY SUPPLY PROJECT with a positive rate of return and a secure source of transport fuels and petrochemical feed stock for Taiwan. x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY REFINED PRODUCTS --NOT CRUDE OIL The CTL F-T process produces a finished motor fuel,ready for use in cars,trucks,tanks,airplanes, ships and stationary power generation units.Not only are the fuels compatible with the existing transportation infrastructure,ranging from storage tanks,transport pipelines,they will work with the oldest diesel engines to the most modern electronic controlled environmentally efficient engines of the 21*century.F-T fuels can be used in low blends or up to 100%in the same infrastructure without modification to the engine.F-T transport fuels according to the U.S.EPA are bio-degradable and non- toxic,having virtually zero sulfur and aromatics,with emission levels comparable with that of CNG in a diesel engine.This fuel is highly prized in the low aromatic California market. F-T diesel has a higher market value than even low sulfur diesel.Currently Shell markets a blend of 5%F-T diesel in Europe called V-Power Diesel for a €0.07/tr premium or $5.30/gal and in Thailand, Shell markets a 20%-25%blend of F-T diesel called Pura Diesel for a 7.5¢/gal premium or $13/bbl. The California Energy Commission believes F-T diesel will command a $10 to $20/bb!premium from an emission and quality point of view.California,the EU and Asian markets believe F-T diesel is a better fuel and are willing to pay a premium for it. US.West Coast -Potentially the highest market value in the Pacific Rim The California diesel market is the only market in the world that places a premium on low aromatic diesel.The California on and off-road diesel market demand is over 400,000 bbi/d with a whole sale price in April 2005 of almost $1.60/gal.Couple this premium market with a traditional U.S.Energy Credit and or California AQMD emission credits and you could potentially add an additional 90¢/gallon,$990 million per year,$20 billion over 20 years to the project economics. LOCATION Many potential energy development projects are located in remote areas,far from any transportation infrastructure or port facilities to return the energy to the equity nation.Alaska's Beluga CTL plant is 45 miles south of Anchorage,within a few miles of the Cook Inlet and 30 miles north of the existing Drift River oil export terminal capable of handing up to 500,000 bb!tankers. An added advantage of the Beluga,Alaska location is that it has an existing energy infrastructure located nearby;natural gas for plant startup,electric grid for power during construction,startup,a market for waste heat derived electric power and numerous depleted gas fields for CO2 sequestering. August's 2005,spot/rack wholesale price for diesel in California was over $2.15/gallon -$90/bb! and $686/mt or 98¢more than the fixed price;while the 2004 average OPIS wholesale price for 5 x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY low sulfur diesel in the U.S.Pacific Northwest was over $1.40/gallon or 23¢/gal more.2006 will bring the requirement for ultra low sulfur diesel for on-road markets and in 2010 all US diesel must meet ULS requirements further increasing the costs of west coast US diesel. The three Charts below illustrate the cash flow for Taiwan over 20 years with Market Savings ranging from O¢to 80¢per gallon.In the Base CTL case below Taiwan's subordinate investment of $1.5 billion is recovered in 20 years with no market upside and less than 2 years with an 80¢/gallon market upside ($1.97/gallon wholesale)price.Taiwan's IRR ranges from 1.3%for the Base CTL Case with no market upside to 27%with market prices still below the August 2005,California wholesale market prices for CARB diesel of $2.15/gallon. Each of the three chALASKACTLECONOMICSachofthetreecharts Base CTL Project illustrates the expected Taiwan Revenue Stream cash flow for Taiwan(in §billions over 20 years) Taiwan Revenue Stream over 20 years for s CTL Plant F-T Diesel Price of $1.1 7/gal with the green bars. " oe "The red line illustrates AUGUST 24,2005 WHOLESALE PRICE OF {="12 CARB DIESELIN CALIFORNIA $2.15/GAL 1 the expected pre federal °"Toon tax IRR for the different | j market prices shown on the X axis.The yellow boxes on each barhon* 2 °ba *provide the time it will$4.17 $127 $1.37 $1.47 $1.67 $1.87 $1.77 $187 $187 Price Sigal .[a fins tn poenes eae TO take Taiwan to recover its $1.5 billion dollar subordinate investment at the market price shown.As an example,if the market price is $1.17/gallon,equal to the base CTL plant price for diesel (but some 98¢lower than current wholesale prices)it will take 20 years;however,if the wholesale market price is at $1.97/gallon, Taiwan would recover its $1.5 billion investment within 2 years and achieve a 27%IRR. The Chart below titled "Energy Credit”provides the upside of the recently approved energy credits contained in the Transportation Bill HR-3.This Bill signed into law provides 50¢/gallon energy credits for Fisher-Tropsch fuels (F-T)made from coal and bio-mass.The most obvious 6 x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY benefit is that even if the market wholesale price was only at $1.17/gallon,Taiwan would recover its initial $1.5 billion investment in three years,expect to receive $8.5 billion in cash flow over 20 years and have a rate of return approaching 21%.Conversely,using market wholesale prices of $1.97/gallon,Taiwan would recover its $1.5 billion investment in less than 2 years,expect a rate of return in excess of 37%and receive over $16.9 billion in 20 years. ALASKA CTL ECONOMICS It is clear that the Energy °Energy Credit Credits enacted by theTaiwanRevenueStream (in $billions over 20 years)US Congress will have a Taiwan Revenue Stream over 20 years fora CTL Plant F-T Diesel Price of $1.17/gal |tremendous positiveENERGYCREDITi "50%..te |AUGUST 24,2005 WHOLESALE PRICE OF 1188 _-7 |economic impact on CARB DIESEL IN CALIFORNIA $2.15/GAL 3147 = .. "a t aon CTL/BTL projects in the$128 p74 § 2 $118 >wee 3%. _ a oo [+4 hex US.The downside of j *{Ute 3%fF P*oon §: e.'brs |7”anf this form of economic .™support is that the credits4+1% 2 be :bed bn}hed bed |son have to be renewed every ° $9.47 $127 $137 $147 $87 $1487 $177 $187 $1.97 ™five years.Generally thisMarketPriceSigalion[Bait Taivan CTL Revenue Steam -e-Taman i]is not an issue as ethanol from corn used in the manufacture of gasohol has been receiving renewals for over 25 years,compressed natural gas, over 20 years.Virtually all "alternative”fuels in the US receive some form of energy credit or tax relief to make them competitive in the market place.With the legislation contained in the Transportation Bill,F-T fuels are joining this select group. The next Chart below titled "Loan Guarantee”illustrates an additional level of support for US based CTL/BTL plants provided by the Energy Bill HR-6,recently signed into law by President Bush.The Energy Bill contains over $6 billion in support for CTL type projects in the form of Grants,Co-Funding and Loan Guarantees.Since clean coal gasification programs that produce electricity will also qualify for this economic support,there will be many projects applying for this support.Another section of the Energy Bill provides credits,grants and loan guarantees for projects built on Native American lands or use Native American natural resources and/or employ Native Americans.While the Alaska Beluga CTL project will meet many of these requirements so will many proposed projects in the Lower 48.The benefits contained in the Energy Bill will 7 *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY quickly be allocated to projects that apply for these benefits.The longer it takes to put together a Development proposal for the Alaska Beluga CTL project the less chance there will be benefits under the Energy Bill to apply to the Alaska CTL project.This Chart illustrates the economic ALASKA CTL ECONOMICS Loan Guarantee Taiwan Revenue Stream (in $billions over 20 years) benefits of a Federal Loan |Guarantee.The Alaska |Beluga CTL model uses a Taiwan Revenue Stream over 20 years fora CTL Plant F-T Diesel Price of $1.17/gal LOAN GUARANTEE AUGUST 24,2005 WHOLESALE PRICE OF +CARB DIESEL IN CALIFORNIA $2.15/GAL S147 YEAR BACK IN $187 $1.77 Market Price Sigalion [Mam Talwan CTL Revenue Stream =-@-TaiwanIRR l $127 $137 $147 $187 $187 |commercial loan rate of 8% |for a 15 year loan.With a |Federal Loan Guarantee we |assume that the commercial loan rate of 5%would be Talvean(RR|achievable.As you can see a |lower loan rate has a positive|impact on the Alaska Beluga it isCTLprojectbut |minimal.There isn't much difference between the IRR and cash flow shown in this Chart and that of the Base CTL Project case,approximately $100 to $400 million in savings over 20 years.. This last Chart shows the actual wholesale price for CARB diesel in California from January 2004,through August 2005.The Chart shows that in January 2004,the average delivered price Cente/GalionCARB Diesel Fuel Average Rack Prices(As of 8/24/2005) PV pee nyNVwsTome or fr ferrFee ©fe etetFertFe =fs ere for crude oil to California refiners was approximately §$30/barrel |resulting in a wholesale diesel price |Of 95¢/gallon,some 22¢below the |initial fixed price for the Alaska |Beluga CTL plant. |crude prices show the upside of this August 2005, |issue with wholesale diesel prices |approaching $2.15/gallon or 98¢/gal |above the initial CTL diesel price. ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY $25 or $30 Crude Oil -Long Term or Short Term Can it happen? WHAT IMPACT WILL IT HAVE ON THE ALASKA BELUGA CTL PROJECT? What would happen if crude oil prices dropped to $30/bbl over the long term?The Alaska Beluga CTL project will have a marginal rate of return but it would still be able to meet its debt service and operating costs.Based upon the historical margin between the price of crude oil and the wholesale price of CARB diesel of $14/barrel,$35/barrel crude prices would result in $1.17/gallon diesel prices.The California Energy Commission (CEC)has projected that this historical margin will increase to $19/barrel to take into consideration the requirement for cleaner fuels post 2006 and 2010.This means that $30/bbl crude in 2011 would result in $1.17 / gallon diesel.If this level of crude price was maintained for 20 years Taiwan would have a rate of return of 1.3%but would have benefited on the home front from the low cost of crude oil.If the price of crude drops to $25/bbl over the long term -20 years,Taiwan will still have a rate of return of 1.3%as its annual payment of $87 million remains unchanged.The Equity Owner's rate of return (this is a leveraged rate of return)will drop from 25%to 14%.At $22/bbl crude the Equity owner's IRR is zero but who among us believes crude oil will ever approach $22/bbl again. The main point is that even at $22/bl crude oil prices,the Alaska Beluga CTL project has a positive cash flow.I doubt that there are many in the industry that believe crude oil will return to this low price level over the long term. Taiwan will receive 90%of the market upside until it recovers its initial $1.5 billion investment and 45%thereafter.Assuming that market prices stay where they are today,Taiwan will recover its investment in 2 to 3 years and earn $billions more over the next 20 years.The Energy Credit contained in the Transportation Bill is considered a market upside thus 90%of the credit is allocated to Taiwan until it recovers its investment.Because Taiwan receives 90%of the excess cash flow or market upside in the early years,it actually receives more than 45%of the net cash flow over the life of the Alaska Beluga CTL project. *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY THE PROPOSAL --Three Levels of Investment: 1.The Pacific Rim Nation (Taiwan)through a US company invests $1.5 billion dollars over the 5 years of design and construction in the Alaska Beluga CTL project.In exchange for its $1.5 billion subordinate investment Taiwan will recover $1.745 billion through: a. b. A 5%interest only payment of $87 million per year at commercial startup,plus; 90%of the difference in price or market savings achieved between the CTL Plant price of the F-T diesel and naphtha and the prevailing market price,and have; The right to purchase 100%of the F-T diesel and naphtha from the CTL plant at a market price until it recovers its subordinate investment in the CTL plant, i.The initial price for diesel is $1.17/gal ($378/mt)and; ii.The average price for diesel over 20 years is $1.28/gal ($418/mt) iii.The initial price for naphtha is $1/gal ($378/mt)and; iv.The average price for naphtha over 20 years is $1.10/gal ($416/mt); 45%ownership in the CTL plant once Taiwan has recovered its subordinate investment in the CTL plant.Once Taiwan backs in to ownership,the price for their 45%of the F-T fuels will be the market price. 2.The Equity Owner invests $500 million over 5 years of design and construction in the Alaska CTL Project.In addition the Equity Owner borrows $3 billion from a commercial lender during construction and converts this construction loan to a commercial loan with a 15 year debt service period after commercial startup at the market rate,assumed to be 8%interest.In exchange for its equity investment,the Equity Owner will: a. b. Initially have a 100%ownership in the Alaska Beluga CTL plant Fix a price for the F-T naphtha and diesel at commercial startup that will provide a 25%IRR pre federal tax over 15 years. Recover 10%of the difference in price or market savings achieved between the fixed price of the F-T diesel and naphtha and the prevailing market price until Taiwan back-in. Have the right to market 100%of the F-T diesel and naphtha from the CTL plant at a market price until Taiwan recovers its $1.5 billion investment in the CTL plant; i.The initial fixed price for diesel is $1.17/gal ($378/mt)and; ii.The average price for diesel over 20 years is $1.28/gal ($418/mt) iii.The initial fixed price for naphtha is $1/gal ($378/mt)and; iv.The average price for naphtha over 20 years is $1.10/gal ($416/mt); 55%ownership in the CTL plant once Taiwan has recovered its $1.5 billion investment in the CTL plant and 55%of the market upside. 3.The Alaska Beluga CTL Developer (CTL Developer)invests as much as an additional $.5 million to bring F-T and gasification technology advisors,financial advisors,a coal mine developer,an electric power developer,Taiwan,the Equity Owner,Federal Government,the 10 x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY State of Alaska,Local Government and West Coast States together to build a viable CTL project in Alaska and as the model for further CTL plants for the US. a.The CTL Developer will spend an additional $.5 million over the next 18 months: i. li. iii. iv. Vi. Vii. Viii. Negotiating with Taiwan for the subordinate loan,attending meetings with all participants; Evaluating and negotiating with the four largest F-T and gasification technology providers for the best technology for the Alaska CTL/BTL program; Negotiating with the Anchorage Economic Development Corporation,the Kenai Borough and the Alaska Industrial Development and Export Authority for utility infrastructure and tax support; Lobbying with the State of Alaska for tax treatment and infrastructure to support the CTL plant such as road access from the Anchorage area; Discussing coal mine development opportunities with local,regional, national and international coal mine developers to own and or operate the Beluga coal mine; Lobbying and negotiating with the State of California along with the Ports of Los Angeles/Long Beach and San Francisco to gain the best access to California diesel markets,plus support from the Federal level for a domestic CTL program; Lobbying and negotiating with the State of Washington along with the Port of Seattle to gain the best access to Washington area diesel markets,plus support from the Federal level for a domestic CTL program; Lobbying and negotiating with the US Congress and the Bush Administration for long term energy credits for coal F-T fuels similar to that already given to biodiesel,ethanol,CNG and other forms of alternative transportation fuels b.The CTL Developer will receive a 1%Development Fee paid in two installments;the first in 2007 for $20 and a second for the remaining 1%at financial close and startup of the Alaska CTL plant.In addition,the CTL Developer will receive 1%of the CTL plant Net Cash Flow for the life of the CTL project.The CTL Developer will have a right to take an equity position in the CTL plant and the right to participate in any venture resulting from the sale of the many process streams generated from the CTL plant; c.All operating costs for the CTL Developer beyond its $.5 million investment will be covered by Taiwan and Equity Owner(s). Taiwan will never have an obligation to purchase the F-T fuels but will have a continuing right to elect to purchase the fuels.The CTL Equity Owner group will be responsible for marketing all products from the CTL plant: a.Prior to ownership in the CTL plant Taiwan will have call on 100%of the F-T diesel and naphtha at the market price with 12 months advanced notice; 11 5. construction thus $1.745 billion is recovered in 20 years.All values are in ($millions) xk ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY b.After back-in ownership Taiwan will have call on 45%of the F-T diesel and naphtha at the at the market price with 12 months advance notice. The date that Taiwan will recover its subordinate investment will be determined by the accumulation of two cash flow streams: a.The annual interest payment of $87 million;and b.90%of the difference in price or market savings achieved between the fixed price of the F-T diesel and naphtha and the prevailing market price. As an example,if the fixed price ($1.17/gal)equals the market price ($1.17/gal)Taiwan will recover its subordinate investment at $87 million per year.Taiwan's subordinate investment,earns 5%during 2 3 4 §6 7 9 10 |11 12 |13 14 15;16 17 |18 19 |20 $87 $87 |$87 |$87 $87 $87 |$87 $87 $87 $87 |$87 $87 |$87 $87 $87 |$87 $87 |$87 $87 |$87 If the market price is 15¢/gal above the fixed price of $1.17/gal Taiwan will receive $87 million per year in interest payments and $153million per year in market savings;payout will occur in 8 years. After obtaining ownership,in addition to receiving 45%of the net cash flow of the CTL plant, Taiwan also receives 45%of the market savings (MS)or an additional $76/yr until the CTL plant debt service is paid off. Year 1 2 3 4 5 6 7 8 9-15 16-20 Interest pmt $87 |$87 |$87 |$87 |$87 $87 $87 $87 $0 $0 Market $153 |$153 |$153 |$153 |$153 $153 $153 $153 $536 $0 Cash Flow $0 $0 $0 $0 $0 $0 $0 $0 $816 $1,548 Accumulated |$240 |$480 |$720 |$960 |$1,200 |$1,440 |$1,680 |$1,920 [|$3,272 |$4,820 If the market price is 50¢/gal above the fixed price Taiwan will receive $87 million per year in interest payments and $510 million per year in market savings;payout will occur in 3 years.After ownership,in addition to receiving 45%of the net cash flow of the CTL plant,Taiwan also receives 45%of the market savings (MS)or an additional $273/yr until the debt is paid off in year 15. Year 1 2 3 4-15 16-20 Interest Pmt $87 $87 $87 $0 $0 Market Upside $510 $510 $510 $3,061 $0 Cash Flow $0 $0 $0 $1,381 $2,289 Accumulated $597 $1,194 $1,791 $6,233 $8,522 12 ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY The Equity Owners cash flow is determined by two separate cash flow streams: 1.80%of the Net Cash Flow (NCF)from the CTL plant operation.NCF is defined as the net cash remaining after debt service,the 5%interest only payment to Taiwan, CTL plant O&M,Royalty costs,coal costs,actual transport costs to market and insurance costs.The Equity Owner cash flow is based upon the following formula before and after Taiwan's back-in.Before Taiwan's back-in,Net Cash Flow (NCF) is allocated: a.18%for State and Local taxes; b.1%to the coal supplier as a market tracker; c.1%to the CTL plant developer;and d.80%to the Equity owner. After Taiwan backs-in to ownership in the Alaska Beluga CTL plant and before repayment of the CTL plant debt: a.18%for State and Local taxes; b.1%to the coal supplier as a market tracker; c.1%tothe CTL plant developer; d.36%to Taiwan;and e.44%to the Equity owner. 2.A%of the difference in price or market savings achieved between the fixed price of the F-T diesel and naphtha and the prevailing market price based upon the following formula before and after Taiwan's back-in.Before Taiwan's back-in, market savings (MS)is allocated: a.10%of the MS as a separate payment outside of the normal NCF stream until the earlier of Taiwan's back-in or 20 years, b.55%of the MS as a separate payment until the later of Taiwan's back-in or repayment of the CTL project debt,and c.After the later of Taiwan's back-in or repayment of the CTL project debt the MS calculation is eliminated and the market sales price is the CTL plant revenue stream. 13 x *ALASKA NATURAL RESOURCES TO LIQUIDS COMPANY After both Taiwan's back-in and the CTL plant debt service is recovered,the Equity Owner and Taiwan's MS is eliminated and the market price determines the sales revenue stream.Each interested party receives the following %of NCF: a.15%for State and Local taxes; b.1%to the coal supplier as a market tracker; c.1%to the CTL plant developer; d.38%to Taiwan;and e.45%to the Equity owner. The Equity Owners IRR set at 25%assuming that there is no market upside or downside. If the market price is above the fixed price required to achieve a 25%IRR (over a 15 years of commercial operation),the Equity Owner will receive 10%of the market upside as outlined above until Taiwan has recovered its subordinate investment.Once Taiwan recovers its subordinate investment,the Equity Owner receives 55%of the market upside.Any market upside that the Equity Owner receives will increase the IRR for the Equity Owner over the 15 year debt service period.The table below illustrates the potential upside in IRR for the Equity Owner as the market price exceeds the CTL plant fixed price of $1.17/gallon (escalated at 1%/ yr)delivered to a Pacific Rim market (with a $5/bbl transport rate assumed). As an example,if the market upside is:(looks at a 5 yr construction and a 20 yr operation period) ¢/gal above Fixed Price |-10¢/gal O¢/gal 10¢/gal 30¢/gal 60¢/gal 90¢/gal Taiwan IRR*1.3%1.3%9%16%23.4%29% Equity Owner IRR**14%25%26%30%38%47% *The IRR for Taiwan is un-leveraged and is based upon the 5 year construction period and first 20 years of operation. **The IRR for the Equity Owner is a leveraged retum based upon an 18%investment of the total project CAPEX and is for the 5 year construction and 15 year debt service period. We believe that there will be a combination of upside for the CTL plant.We believe that the market price for F-T diesel in the California market will exceed the fixed price by at least 30¢/gallon over the first 15 years.In addition we believe that the U.S.Congress will either approve the extension of energy credits for coal based F-T fuels produced in the US from domestic resources or agree to provide a guaranteed time period to collect these energy credits that will coincide with the debt service period,thus allowing for commercial financing. 14 ALASKA WEST COOK INLET Coal To Liquids Project AN UNTAPPED PACIFIC RIM RESOURCE For Taiwan -Korea -Japan co ." 4 .a,7 ;A! my ern }a eo ANGTL-AIDEA September 8,2005 PACIFIC RIM ENERGY SUPPLY TAIWAN IRR RANGING FROM 1.3%TO 37% ALASKA COOK INLET COAL "BILLIONS OF BARRELS” (Equivalent to a 6 Billion Barrel Oil Field) PROVEN RESERVES 100 +YEARS SUPPLY PROVEN F-T TECHNOLOGY FIXED PRICE FOR UP TO 20 YEARS TRANSPORTATION FUELS FROM COAL LONG TERM PRICE AND SUPPLY HEDGE BELUGA CTL PROJECT NEAR AN EXISTING DEEP WATER EXPORT TERMINAL oN JM pad ot TI Tt,800%,*'S,Miergeost*"-Mapkgint:Proven a a oene\_NUNAWUT,-.winnipeg219eee1.' :70%1:sper 7 og \Og IF a)SASK.S00)4 j ARCTIC OCEAN may teed"NORTIT AMERIC.:=N.Ts Edmonton,Proven Coal Pee 2!oo 'CalgaryBRITISHReserves,"COLUMBIA:,=ae i eel Renee aa oa ALASKA -,xi Beta Po<8,cor,KOHH a fom}oe "ueOe "Anchorage mF 'izoeYakutsk”one ba -UNITED_&Q .4a¢RUSSIA)':a f STATES |At the Tide See "aha ,ae *,ee ae ke a oe Water =Magadan ||Bejing Sea :an z,f gegof +1 ' o CHINA .as mPening atartiin OROtEe oPetropavissk-KamchatskiyREanomateeme 30°acre foo en at :fosanPp'ySngyangarene a 'NSiiind!'seoul™”f -f "Sapporogtong|Kong Bs ucan i ei: ;.'ml aipei .#Bl sokyo 'Do wt 20°i -::&cP Kaohsiung }On the Great ig &ul:t wit Honolulu,PACTIF .oy @i.Circle Sea ¥<8 10s.;Manila \PO LYN E SIGmeRoutel 150°'©2005 Microsok Cop.4 30 ai9O®2 .A5OF ;a _..Sasoe _-Foe aea¢ Mine Mouth 80,000 bbli/dCoalToLiquids"Beluga CTL Plant” --- LMU 1 Mining Limit Beluga Power Plant / Coal Transport Conveyor" al - Chuitna Group Chilitna Coal Lease Area F-T Plant at Beluga _North Foreland Industrial Development Resource &Reserve Summary million tons of coal -billion of barrels of equivalent liquids Coal Resource Hypothetical Resource Identified Resource Measured Resource Chuitna Measured Reserves Chuitna Proven Reserves Placer Dome Reserves M-tons 64,230 10,550 1,400 1,000 700 700 B-bbis 96 15.6 2.1 1.5 1.05 1.05 COOK INLET/SUSITNA COAL PROVINCE ™'. : 'fe ea ;.er ee SP SUSIINA FLATS DISTRICT a pfs :SQ LITTLE SU@LENA DISTRICTgEV1CANYONCREEKDISLHICT| anes -V2 WOMNSON CKEER DISTRICT wa STEN TEN LYA AM YIE®MOUN TAN ¢SSE Dash ePt ar a a 4,4 1 t KS SED MINA Pete 7 ee an 4 ESTIMATED ALASKA COAL POTENTIAL Resource &Reserve Summary Coal resources in billion of tons -equivalent liquids in billions of barrels *Hypothetical Resource Cook Inlet Region 64 billion tons 96 billion barrels *Estimated Coal Resources In Alaska 160 billion tons 240 billion barrels 96 Billion Barrels of Transport/Petrochemical Fuels from the Cook Inlet Region 240*Billion Barrels of Transport/Petrochemical Fuels from Alaska's vast Coal Resources *240 billion barrels is almost 22%of the worlds proven oil reserves of 1,140 billion barrels DRIFT RIVER EXPORT TERMINAL COOK INLET,ALASKA Capable of handling 900,000 bbl tankers FISCHER-TROPSCH REACTOR BIO-MASS SOLIDS Tj»|GASIFICATION BIO-RENEWABLES STEP |*SYN GAS GENERATION METHANE CES varupat STEAM GAS CS]REFORMING The Fischer-Tropsch Process (F-T)has three main processing steps shown here,all of which are commercially proven. STEP 1,SynGas Generation represents -50+%of the total cost STEP 2,F-T Conversion -25%of the total cost STEP 3,Product Upgrading -15%to 25%of the total cost GASEOUS PRODUCT!F-T FUELS "ONE FUEL”FOR YOUR FUTURE The first step converts natural gas,coal or bio- Mass into synthesis gas,a mixture of carbon Tonoxide (CO)and hydrogen (H,)-syngas. ay Cc Se This mature process technology has been used in many commercial facilities as the first step for producing ammonia,hydrogen,methanol. Sasol,the recognized world leader in F-T technology uses both gas reformation and coal gasification to produce syngas for its F-T production. methane,alcohols and diesel The length of the hydrocarbon chain is determined by the composition (or ratio of H,to CO)of the syngas, the catalyst selectivity and the reaction conditions. Sasol has pioneered several types of F-T conversion technologies to produce over 150 different products from their F-T plants in South Africa alone.The hydrocarbon stream (CH,)is sent to product workup and the water (H,0)is sent to the water recovery unit. STEP 3+HYDROCRACKING -PRODUCT WORKUP KEROSENE =>) eee a an a>a i a WAXY HYDROCARBON PRODUCTS -C,, \ STEAM Nee SLURRY PHASE >->. The type of SynGas Generation,gas reformation or gasificationofsolids,depends upon the raw material or feed stock available,SYNTHESIS GAS Around the world stranded Natural Gas is the choice;however,(H,&CO) in the US with the exception of North Slope Natural Gas,coal, bio-mass (garbage),bio-renewables (trees and plants)represent the majority of available feedstock for a US based F-T program!STEP 2+F-T CONVERSION CHOREN,a German company has been oper- ating a bio-mass gasifier to produce syngas for methanol and electric production since 1998. This plant is considered the worlds first bio- renewable gasifier and has the distinction ofproducingfuelsandelectricitywithanetzeroimpactontheworldsCO,production as the CO,absorbed by the plants and trees is equal or greater than the CO,produced from gener- ating the electricity and burning the fuels. Step two,the Fischer-Tropsch conversion, discovered by the Germans in the early 1900's, upgrades the syngas into a waxy hydrocarbon. Simplified this reaction is : |_DIESEL=OS) PRODUCT NAPHTHPHTHAUPGRADING=Oo) The third step,Product Upgrading: Upgrading can produce a wide range of commercial prod- ucts from gasoline to diesel to candle wax.For a US based FT program we would recommend middle distillate fuels: kerosene,diesel and naphtha. This process makes use of standard hydrocracking and hydroisomerisation processes commonly found in the re- finery world,As with the First Step of syngas production, suitable technology is widely available from several licen- sors around the world. The F-T process produces fuels that contain essentially no sulfur,no aromatics or ring chain hydrocarbons that are so toxic and harmful to the environment.The F-T process does produce CO,but itisina pure stream and is easily contained for sale to third parties or can be sequestered for injection into underground wells. F-T Fuels,clean fuels for the future that will reduce Taiwan's dependence on imported crude oil and products, Secunda CTL ae PEE South African Secunda 150,000 BPD Coal to Liquids (CTL)9 Mossgas GTL South African Mossgas 47,000 BPD Gas to Liquids (GTL) Sarre cre ae 10 Shell GTL Shell Bintulu 15,000 BPD Gas to Liquids (GTL) ALASKA BELUGA CTL PLANT FINANCIALS For TAIWAN ©$5 Billion Dollar Total Investment o $500 million Equity Owner Cash o $1.5 billion interest only -subordinate loan $3 billion borrowed 15 year debt Service @ 8% Pre-Tax IRR of 25%for Equity Owner Taiwan Back-in for 45%Ownership Fixed Price Fuels FOB Pacific Rim for up to 20 years o $1.17/gal diesel -$1/gal naphtha escalating at 1%per year Transport credit for delivery to Pacific Rim Markets o $5/bb1 11.9¢/gal escalating at 2%per yeario)°io)io)io)o12 ALASKA BELUGA CTL PLANT F-T ECONOMICS ©$1.5 Billion Dollar Investment by Taiwan OVer 5 YEALS -(initial development payment in 2005 $10 million) $50 million in 2006 $500 million in 2007 $425 million in 2008 $450 million in 2009 $75 million in 2010 13 ALASKA BELUGA CTL PLANT F-T ECONOMICS In return Taiwan receives: «$87 million/yr Interest Payments (5%)for up to 20 years «$1.74 Billion returned in Interest Payments «Potential fuel savings between fixed price and market price «F-T fuels FOB Pacific Rim ($5/bbl-12¢/gal)shipping credit »F-T diesel at $1.17/gal escalating at 1%/yr for up to 20 years »F-T naphtha at $1/gal escalating at 1%/yr for up to 20 years «Back-in for 45%Beluga CTL plant ownership 14 |!need PACIFIC RIM ECONOMICS ©Potential Market Savings to Taiwan: «Potential fuel savings between fixed price and market price (many markets are paying a premium for ultra cleanF-T diesel ranging from 30¢to $5/gallon) «10¢/gal savings =$110 million/yr +2004 average OPIS Pacific Northwest diesel price $1.45/gal -28¢savings :April 2005 OPIS California diesel rack/spot price $1.92/gal -75¢savings -August 2005 OPIS California diesel rack/spot price $2.15/gal -99¢savings -2004 average diesel price FOB Singapore (cargo)$1.14/gal -savings ? »Premium in Europe €0.07/ltr for a 5%blend ($5.30/gal)"Shell V Power Diesel” +Premium in Thailand 7¢/gal for a 20-25%blend (30¢/gal)"Shell Pura Diesel” 15 «Economics -$1.5 Billion investment over 5 years Recover $1.75 Billion 3 to 20 years -$87 Million/yr interest only payment -$3 billion debt @ 8%15 year loan -Taiwan IRR 1.3%to 27% -F-T Diesel $1.17/gallon year 1 -F-T Diesel avg $1.28/gal over 20 years -F-T Naphtha $1/gallon year 1 F-T naphtha avg $1.10/gal over 20 yrs -Taiwan back in for 45%ownership From year 3 to year 20 Taiwan Share of Market Price 90 % before back-in and 45%after back-in ALASKA CTL ECONOMICS Base CTL Project Taiwan Revenue Stream (in $billions over 20 years) Taiwan Revenue Stream over 20 years for a CTL Plant F-T Diesel Price of $1.17/gal BASE 14 40% AUGUST 24,2005 WHOLESALE PRICE OF 12+CARB DIESEL IN CALIFORNIA $2.15/GAL sis 7 8% $10.8 oy 10+$07 r iw -+,221% $85 i al o TI 41 pe 1 2 ae A a -21%1 2% *6+$5.4 RB Lt t9%a «PLT fem '8 at "Bagg ; 13% | 0, a4 $4.75 a Loond --buemd wy we ry.) 20 10 6 §4 3 3 3 2 0 mall 1-3°h +}% $1.17 $1.27 $1.37 $1.47 $1.57 $1.67 $1.77 $1.87 $1.97 Market Price $/gallon YEAR BACK IN Ml Taiwan CTL Revenue Stream -TaiwaniRR TaiwanIRR «Economics -$1.5 Billion investment over 5 years -Recover $1.75 Billion 2 to 20 years -$87 Million/yr interest only payment -$3 billion debt @ 5%15 year loan -Taiwan IRR 1.3%to 27% -F-T Diesel $1.17/gallon year 1 -F-T Diesel avg $1.28/gal over 20 years -F-T Naphtha $1/gallon year 1 -F-T naphtha avg $1.10/gal over 20 yrs -Taiwan back in for 45%ownership +From year 2 to year 20 Taiwan Share of Market Price 90 % before back-in and 45%after back-in ALASKA CTL ECONOMICS Loan Guarantee Taiwan Revenue Stream (in $billions over 20 years)$(billions)Taiwan Revenue Stream over 20 years for a CTL Plant F-T Diesel Price of $1.17/gal LOAN GUARANTEE AUGUST 24,2005 WHOLESALE PRICE OF 12+CARB DIESEL IN CALIFORNIA $2.15/GAL $11.8 $14 = =27% 78 7 eee sa Oe et $56 L L--F hoyLH]tes 13% $1.17 mn 4 t ---T $1.27 $1.37 $1.47 $1.57 $1.67 $1.77 $1.87 $1.97 Market Price $/gallon YEAR BACK IN HB Taiwan CTL Revenue Stream Taiwan IRR TaiwanIRR «Economics -$1.5 Billion investment over 5 years -Recover $1.75 Billion 2 to 3 years -$87 Million/yr interest only payment -$3 billion debt @ 8%15 year loan -Taiwan IRR 21%to 37% -F-T Diesel $1.17/gallon year 1 -F-T Diesel avg $1.28/gal over 20 years -F-T Naphtha $1/gallon year 1 -F-T naphtha avg $1.10/gal over 20 yrs -Taiwan back in for 45%ownership -From year 2 to year 3 Taiwan Share of Market Price 90 % before back-in and 45%after back-in Energy Credit Taiwan Revenue Stream (in $billions over 20 years) ALASKA CTL ECONOMICS Taiwan Revenue Stream over 20 years for a CTL Plant F-T Diesel Price of $1.17/gal ENERGY CREDIT "veg] et AUGUST 24,2005 WHOLESALE PRICE OF $15.8 mel 45%CARB DIESEL IN CALIFORNIA $2.15/GAL $147 = 4 $137 = 1 oy $126 _ BBTY ai $145 a ya en a ee$10.8 =ae 35% <a tT|bay20y-oF 131%7 3% =$8.5 |ae]6 a _Te Ces Oo 29% ao PF "TI 126%27%+& ,-"|4abie | at +15% --==hemaed ===Lsamedan)3 3 2 2 2 2 2 2)7% 0 +-t-+t t 5% $447 $1.27 $1.37 $1.47 $1.67 $1.67 $1.77 $1.87 $1.97 Market Price $/gallon _Taiwan CTL Revenue Stream -@Taiwan IRR]TaiwanIRR «Economics -$1.5 Billion investment over 5 years -Recover $1.75 Billion 2 to 3 years $87 Million/yr interest only payment -$3 billion debt @ 5%15 year loan -Taiwan IRR 21%to 37% F-T Diesel $1.17/gallon year 1 -F-T Diesel avg $1.28/gal over 20 years F-T Naphtha $1/gallon year 1 -F-T naphtha avg $1.10/gal over 20 yrs -Taiwan back in for 45%ownership «From year 2 to year 3 Taiwan Share of Market Price 90 % before back-in and 45%after back-in ALAS Taiwan Revenue Stream (in $billions over 20 years) KA CTL ECONOMICS Energy Credit +Loan Guarantee ENERGY CREDIT +LOAN GUARANTEE Taiwan Revenue Stream over 20 years fora CTL Plant F-T Diesel Price of $1.17/gal Market Price $/galionYEARBACKIN _Taiwan CTL Revenue Stream =-¢-Taiwan RR| 18 $172 et AUGUST 24,2005 WHOLESALE PRICE OF $16 =CARB DIESEL IN CALIFORNIA $2.15/GAL $15.0 "4 $140 - puaany$129 57% 2 $118 1 oe$14.41 a.:Ln r $98 tT baxzr=4 |3% ==LY Looe)a7 |29%a?Ao "T26%27%|4 Page ee 24% 44 2 3 3 3 2 2 2 2 2 2 0 +++ $1.17 $1.27 $137 $147 $1.57 $1.87 $177 $187 $1.97 883_:TaiwanIRR - SOILS r SO/LILZ - SOLIS r SOMLIS - SO/LIP -S.Calif.$30 Crude ---n-eeeceeceeeeeere ee cceeece teeter cent cenceeeeeeneneeceeeneneaseneonsanensnseseaseseissnsasetsteneenensesconeeesanen r SOILIE - SOILI2 -N.Calif. - SO/LIL - POFLICL r BOILILL r VOIL/OL - POILIG r POILIS (As of 8/24/2005) - POILIZ r POLIS - POLIS CARB Diesel Fuel Average Rack Prices r VOILIP - VOILE-VOILicVOILIL 95 {Xf oSoo UO|jBHjsjusy 2004-2005Source:Oil Price Information Service California Energy Commission "Cost of Fuel Options Study” for diesel vehicles $1.33/gal lower cost GTL vs CNG:7.0 7-3%00%- ww 3 «°°q__CNG | 4 20% <7 $1.60/gal - | 3 5.0 F-T Diesel327¢/gal (GTL)<> 4.0 - .\\/100%./Xv%3.0 \\7/1 'i 2.0 | g _ 10% 1.0 || cE 10%5%100%+ 0.0 T -C P C1]a]Proyecten WwW Ww CNG Crass TT Diesel FAYFleetOpPropaneFojecte!Fischer-Biodiesel Transit Transit 8 Truck CNG Waste Hy brid te Fuel CelllectrificatFischer-..Water - ion Class 5-6 Tropsch |Propsch B20 Bus Bus (Harris |School Bus ;Manageme|Transit Emulsion |7™2"sitP(DPF)(Averaged)|(OCTA)|Ranch)nt San__|Bus (NY)Bus Incremental cost/gal avoided |0.1094845 |0.2197525 |0.2500011 |0.2753116 1 1.6030215 |1.6173795|1.9835559 |2.2663144 |2.1372664 |5.3211612 |8.7494861 |39.56178 "ay|a hiPVsf=On a $/million btu basis vs Biodiesel &Ethanol | Pf Veal qa }ald Requested Energy Credits for F-T Diesel (CTL -BTL) 7 <Biodiesel Refund > -46 \__Ethanol Refund > a Diesel Refund,g Le @ -rn3$a «a,F-T Diesel Refund”ea ©a ai g rd g -.CETDiesel Refund 3 3 8 Ethanol 75,000 Btu/gal a"=3 F-T Diesel 130,000 btu/gal ea Biodiesel 121,000 Btu/gal Mannesmann he.a L 2 Kd |*2 Syn-gas 250 Btu/scf $1/gal 54¢/gal 50¢/gal 50¢/gal 31¢/gal (mmbtu =1 million btu) Energy Credit that F-T Diesel received is less than %of the 22 Tax Credit of Biodiesel &Ethanol on a $/million btu basis SYNTHETIC DIESEL F-T DIESEL AS CLEAN AS CNG U.S.EPA ets ZERO SULFUR APPROVED =ZERO AROMATICS NON-TOXIC 70 +CETANEBIODEGRAGABLEPM10<CNG 23 A LONG TERM PACIFIC RIM ENERGY SUPPLY RESOURCE ALASKA's WEST COOK INLET COAL "BILLIONS of BARRELS” SECURITY PROVEN RESERVES 100 YEARS OF SUPPLY PROVEN TECHNOLOGY FIXED PRICE FOR UP TO 20 YEARS POLITICALLY STABLE GOVERNMENT REFINED TRANSPORTATION FUELS FROM COAL F-T DIESEL SELLING AT A PREMIUM AROUND THE WORLD ENVIRONMENTALLY FRIENDLY ZERO SULFUR &AROMATIC FUELS May 21,2005 ALASKA NATURAL GAS TO LIQUIDS Mr.Mike Barry Chairman of the Board Alaska Industrial Development & Export Authority 813 West Northern lights Blvd. Anchorage,AK 99503 Responses for Republic of China Letter ICD-2005-058 Alaska Coal to Liquids Dear Mike, |have prepared a response to Mr.Yung-Hsiang Chen,Director General Ministry of Economic Affairs May 20,2005,(ICD-2005-058)letter requesting additional information for the Taiwan ad hoc team investigating the Alaska Beluga CTL proposal. Before |get to the specific responses |would like to recap the Alaska Beluga CTL process development and provide all with the recent history of its evolution.ANGTL's initial involvement was to find ways to increase the volume of export coal from the Beluga coal field to reduce mine costs and improve the coals economics for a potential Taiwan Power market.In ANGTL's view,a coal to liquids project could easily increase the annual coal export volume from 2 to 10 million tons with a modest size CTL plant.While both Shell and Sasol both have proven gas to liquids technology and are building world scale GTL plants in Qatar,only Sasol has a proven CTL program.Sasol's F-T technology uses slurry bed and slurry phase technology in the F-T reactor where upsets caused by impurities in the coal can be corrected within a day whereas Shell uses a fixed bed F-T reactor and contamination can take a month to repair.In addition,Sasol was in negotiations with the Peoples Republic of China to evaluate CTL plants. On April 11,2005,Sasol Synfuels International (Proprietary)Limited (Sasol)and its Chinese partners,China Shenhua Coal Liquefaction Corporation Ltd.and Ningxia Luneng Energy and High Chemistry Investment Group Co.,Ltd.(jointly called "the Combined Chinese Working Team")announced that Foster Wheeler Ltd's UK subsidiary,Foster Wheeler Energy Limited,in a joint venture with China Huanqiu Contracting &Engineering Corp.,had been awarded a feasibility study Stage |contract related to two 80,000 barrels per day coal-to-liquids (CTL)facilities to be located at Ningxia Autonomous Region and Shaanxi Province,respectively,both in the coal-rich western part of the People's Republic of China. Sasol advised ANGTL that if it would consider an 80,000 bbi/d CTL pliant for Alaska,it may be possible to closely follow the Foster Wheeler study for China with one for Alaska.Choosing a smaller size could delay any potential Sasol involvement for years. To this end Sasol provided 8 key points that must be satisfied before Sasol would even consider evaluating a US based CTL program: 1.The CTL plant must be similar in size to the CTL plants now under consideration for China; 2.There must be some form of Government support to insure the long term viability of a CTL program in a world with the potential for crude oil prices below $30/bbi; 3.The coal supply must be proven,provide at least 50 years of supply,be economically priced and delivered to the CTL plant site; 4.The CTL project location must have the ability to sequester CO2; 5.ANGTL must put together a US development team capable handling all aspects of a very complex $4 to $5 billion CTL project; 6.The Alaska CTL Development team would be required to fund the preliminary engineering feasibility study; 7.Sasol must have the right to participate as an equity owner in the US CTL plant; and 8.ACTL plant with Taiwan involvement could not adversely affect Sasol's activity in China. Satisfying these 8 points will allow Sasol!to evaluate an Alaska CTL project versus other potential CTL projects around the world.It is up to ANGTL to show Sasol that the Alaska CTL project can jump start a 30 to 40 US based CTL program and therefore should be at the top of their list.To this end |met with Paul Kruger,Sasol's ChairmanonApril30"to discuss the Alaska Beluga CTL project.Mr.Kruger agreed that an Alaska CTL project had merit and agreed to begin an evaluation at the highest levels. Although Sasol and Shell are competitors on the GTL side,Sasol believes that Shell has the best coal gasifiers for the Beluga coal and Shell believes that Sasol's F-T technology is best suited for a coal feed stock.With this in mind,|contacted Shell International to seek their gasification technology for the CTL project.Mr.Matthijs Senden,Business Group Manager GTL Shell Global Solutions International,directed Mr.Ross Fava,Shell Global Solutions US in Houston,to contact me.Mr.Fava indicated that Shell would license its gasification technology to the CTL project and would reserve the option to participate as an equity owner.Further,Mr.Fava and Shell representatives would agree to attend any technical meetings and would agree to host meetings in Houston.Shell also provided the caveat that a Taiwan involvement could not be seen as a negative by the Peoples Republic of China. With Shell's involvement there is the potential that Mitsubishi,Shell's 25%partner on many international projects may take a position.Sasol and Shell are the two technology providers that are essential to the Alaska CTL program.Both are capable of providing technology and guaranteeing that it will perform as promised.Foster Wheeler,Sasol's long time CTL and GTL engineering company,will most likely be Sasol's choice for a lead engineering company. Based upon preliminary gasification and F-T data provided to ANGTL by Sasol and Shell,we have developed the Alaska CTL economics.Because Alaska can have higher construction costs,higher operating costs,require Jones Act tankers to deliver products to the US West Coast,we have chosen to increase all of the costs well beyond expected US costs.We have taken no credit for improved process efficiencies due to lower water and air temperatures,nor lower operating costs of the coal mine by increasing its annual output from 2 million tons to 16 million tons.The thought has been to evaluate the Alaska CTL project with higher development costs,lower operating efficiencies and conservative product revenues to establish a base upon which to improve with detailed design and process integration driving the final product tailgate costs down and improving the IRR for all participants. The photo to the left is of the 380 MW Chugach Beluga natural gas supplied electric power plant located on the west side of the Cook Inlet and approximately 12 miles to the east of the proposed CTL site.This plant is tied to the Alaska Rail ae Fae ;iq Belt power grid,supplying electric power4asnt:oa;SuesASayKeaMagell"j to more than 80%of Alaska's populationt'oan aye ;Riase and the area's 20”high pressure gaseet.cate25 raat Y line.It provides an idea of the Specific Responses to questions in Paragraph 2,items 1 through 4 CTT se Pe a eh el aeeeesarsnDaleeamenre2aoy-x.Oey idCreat) surrounding country side. 1.The detailed financials for the recent 5 years.........and portfolio,etc. The Alaska Beluga CTL project is a proposed project in the early stages of forming a US CTL Development team to carry the project forward.The specific make up the development team will be determined as the technology providers;Taiwan and equity owners meet and negotiate their specific roles and responsibilities. The technology providers will be world-class multi-national billion dollar corporations capable of providing corporate warranties for their process performance.The equity owners will supply $500 million during the course of design and construction and will form the core of the development team responsible for all aspects of the project development ranging from land acquisition,environmental permitting,construction management,plant start up,long term plant operation and product marketing. At this point the coal mine operation will not be part of the CTL project. 2.The total capital costs for plant construction. The total capital costs are determined by the following cash flow schedule: $1.51 billion supplied from Taiwan from 4Q 2005 through 4Q 2009 $500 million supplied from the Equity Owners from 1Q 2006 through 4Q 2009 Construction borrowing of $2.9 billion from 1Q 2006 through 4Q 2010 Chart below shows investment by year for Taiwan and Equity Owner(s)in $millions Investment TAIWAN EQUITY Sasol has provided an initial estimated Year OWNER(s)cost of design,construction including costofconstructionfinancing,start up and coal2005$10 $0 mine development in the range of $4 to 2006 $50 $50 $5 billion.The Alaska CTL project is utilizing an initial cost of construction of2007$500 $125 $4.3 billion with construction 2008 $425 $125 financing/development costs of $690 million for a total estimated cost of $4.992008$450 $150 billion.The cost of developing the coal 2009 $75 $50 mine is not included in this figure.Sasol has provided a rule of thumb for a newTotal$1,510 $500 CTL plant of between $60,000 and $65,000 per installed barrel of capacity. This would equate to $4.8 to $5.2 billion including mine costs.We are using $62,500 per installed barrel without mine costs. We have assumeda third party will develop the mine and sell coal to the CTL project at the fence line. 3 The procedures for exporting CTL output from the plant. The Alaska CTL project will market all the F-T fuels produced at the plant to the highest value net back markets located throughout the Pacific Rim.Taiwan will have a right to call on 100% of the CTL plant output until it recovers its $1.5 billion investment.In addition to the $75 million annual interest payment,Taiwan will receive 90%of the difference in the "fixed”price (determined at financial close of the Alaska CTL project that provides for an estimated 25% IRR pre tax to the Equity Owner)and the actual market price the F-T products are sold for. Once Taiwan recovers its $1.5 billion investment,Taiwan will back in for a 45%ownership position.At this time Taiwan will have call on 45%of the CTL plant output at market price until the CTL plant debt is paid off (presently planned for a 15 year debt service period)and thereafter 45%of the CTL plant output after manufacturing expenses.With one year notice, Taiwan can call on the remaining F-T product stream at the prevailing market price as determined by the Alaska CTL Marketing Group. The Alaska CTL Marketing Group make up will be determined by the CTL Development Team.Taiwan will play a role in the structure of the Development Team.In addition to marketing the F-T diesel and naphtha,the Marketing Group will be responsible for sale of waste heat steam,excess electric power,CO2,alcohols,waxes and other plant effluent streams. The Alaska CTL plant will maintain upwards of 2 million barrels of storage at the CTL plant site and at the existing Drift River export terminal capable of handling up to one months plant output.The Alaska CTL project will lay a 40 mile pipeline from the proposed plant site to the Drift River terminal and offshore loading dock. 4 Plant construction schedule The time line for the Alaska Beluga CTL project begins in 4Q 2005 with the base line environmental data gathering and land ownership study.1Q 2006,based upon Foster Wheeler completing the Stage I engineering study for the China CTL project, the same program would begin for the Beluga location.By year end 2006,detailed engineering and procurement would begin and the environmental impact statement for both the coal mine and CTL plant would be filed.Assuming early meetings between all interested parties,it is hoped that the environmental permits would be in place by mid 2007 with ground breaking by 3Q 2007.Sasol estimates 36 months to build the CTL plant and 6 months for commissioning and start up.Expected in service is 3Q 2010.If the start of environmental activities is delayed into early 2006, the CTL project will probably shift one year,with start up scheduled for 4Q 2010 and in service by mid 2011. a -Relative material information,including the cost of coal,capacity of the coal supply,etc The Beluga coal field,or as it is sometimes referred to as the West Cook Inlet coal field,consists of two leases;the Chuitna coal lease and the Placer Dome lease.The Chuitna coal lease has had almost 500 test holes drilled to date with a proven recoverable coal base of 700 million tons or 43 years of supply.The off setting Placer Dome lease is nearly identical in size and believed to contain an additional 700 million tons of recoverable coal.Total identified coal resources on the two leases are in the 2 billion ton range. The Alaska Beluga CTL plant will beCOOKINLET/SUSITNA COAL located at the outer edge of the coalPROVINCEfieldandwillbesuppliedviaa conveyor belt from within the mine. The coal is sub bituminous, approximately 7500 btu per pound and contains approximately 24% moisture and very low sulfur,less than .2%.This coal is ideally suited for the Shell gasification process. The Chuitna Group completed its environmental permitting in the early 1990's,but did not develop the strip mine because the price of coal collapsed.The strip mine economics were based upon an expected maximum export of 3 million tons per year (8,000 t/d)with the mine owner hoping for upwards of $1/mmbtu ($15/ton)for its coal delivered to the proposed export terminal.We believe with an expected 45,000 t/d requirement for the CTL plant (16 million tons per year)the coal costs will approach $9.75/ton or 65¢/mmbtu delivered to the CTL fence line.CTL plant economics are based upon initial price of $14/ton,escalated at 1%per year.The 5 COOK INLET SUSITNA PROVINCE current mine plan for the Chuitna Group supports up to 12 million tons per year,adding the Placer Dome lease to the mine plan and expanding the mine with much larger production equipment will easily supply the 15 to 16 million ton annual requirement. The Chuitna Group consists of three US based owners and is managed bya local Alaska company.Unlike the Chuitna Group,Placer Dome has no plans to develop its strip mine lease and is willing to entertain offers to take over their lease.We recommend exploring taking over both leases so they can be 100%dedicated to the CTL project however,with available waste heat from the F-T process,coal drying could help improve coal export economics. b-Technology licensor. The F-T process is a three step process;gasification or syn-gas generation,the F-T process and product work up.Shell will be providing the technology for their gasification process and will most likely license this to Sasol.Sasol will be providing their F-T technology and most likely will license Chevron's refining technology for the third step.It will be Sasol's responsibility to integrate all three steps,and most likely Foster Wheelers expertise will be contracted for in maximizing the efficiencies of all the supporting utilities and power generation.We have included $3/bbl,escalating at 2%per year for insurance and licensing fees. Sasol has indicated that it may have an interest in the mine development and operation. If Sasol is not interested in the mine development,our initial plan is to explore three existing US coal companies:Usibelli,operator of an existing strip mine 200 miles north of Anchorage;or either PeaBody or Arch Coal Company,the number 1 and 2 coal producers in the US,both having extensive experience with strip mines. c -Predicted production cost. The projected first year (2011)price for F-T diesel at the CTL plant tailgate is $1.06/gallon and F-T naphtha is 90¢/gallon. The 80,000 bbi/d CTL plant will have a total installed cost of $4.99 billion with an EquityOwnerinvestmentof$500 million and a Taiwan investment of $1.5 billion.Taiwan will receive a 5%per annum interest payment ($75 million)plus 90%of the market upside of F-T diese!and naphtha.Once all the costs to build the Alaska CTL plant have been calculated,the sales price for the F-T diesel and naphtha will be set at a price that will provide the Equity Owner with a pre-tax IRR of 25%over 15 years.After each year of operation,the actual costs of plant operation and transport to market will be used to adjust the next years fixed price to provide the Equity Owner with a pre-tax (federal only) IRR of 25%over 15 years. Currently,the CTL plant model gives the State of Alaska and local taxing authorities 18%of the net cash flow in lieu of a fixed tax rate.The model also gives the coal provider and the CTL project developer 1%each of the net cash flow,reserving 80%of the NCF for the Equity Owner until Taiwan backs in for its 45%ownership.After Taiwan backs in for ownership the Equity owner receives 55%of the available NCF and Taiwan 45%. In addition,Taiwan and the Equity Owner exclusively share in the market upside until the CTL plant debt is retired.After debt service the market upside is included in the NCF and all parties share based on their %of the NCF. The expected cost of construction financing is 8%and long-term debt is also 8%.The first six months of operation no debt is paid,with one-half of the available cash put in a reserve account.Cash on hand earns 4.5%interest. The table below lists the expected costs for the CTL plant operation in $/bbI along with the projected annual inflation. -s In general,expensesCTLPlantExpenseCost$/bbl |Annual Inflation %are escalated at 2% O&M $8 2%per year while :3 revenue streams areContingency$1 0%escalated at 1%per Diesel Transport $5 2%year.The project Naphtha Transport $4 2%economics do nottakeinto Royalty $2 2%consideration the sale Insurance $1 2%of alcohols,waxes, waste heat or other Coal ($/ton)$14 1%potentially saleable product streams.The expense of removing the CO2 from the syn-gas stream is included but any potential value received from the sale of the CO2 or CO2 sequestering credits are not included. d -Location and surrounding infrastructure ........to the CTL plant. As proposed,the Alaska Beluga CTL plant will be located some 40 miles north of the existing Drift |River oil export terminal.This export terminal and "4 ©1,000,000 barrel tank farm currently handles up to *7 500,000 bb!oil tankers ferrying crude from the it 'Gey west side of the Cook Inlet to the Tesoro refinery"#4 located on the east side of the Cook Inlet.A new ."@ products pipeline and storage tanks will be built to"34%handle the ultra clean F-T fuels.Approximately 23M 2/3 of the total 2,000,000 barrels of tank storage¥will be on the CTL plant site and the remaining 1/3 will be located at the Drift River terminal. -Approximately 80%of the F-T fuels (64,000 bbi/d) will be middle distillate (diesel,jet fuel)and 20%(16,000 bbli/d)will be naphtha. Many of today's finished product tankers max out at 150,000 bbls.It is our proposal to enter into a long-term contract with a tanker company to supply 400,000 to 500,000 bbl diesel (middle distillate)tankers capable of transporting this ultra clean fuel to new storage tanks constructed in the three US West Coast refining centers, Seattle,San Francisco and Los Angeles.Similar new storage tanks may be required in Pacific Rim marketing centers,should it be determined that they represent the highest net back markets. The optimal size for naphtha tankers will be determined based upon Pacific Rim chemical company requirements.We have included $5/bbl for transport of F-T diesel to US markets and $4/bbl for other F-T products to Pacific Rim markets.Both transport rates escalate at 2%per year. LONER TIN as Approximately 12 miles to theTeiereoa8380MWBelugaiANweseer--snnortheast is the existing »Fle Bt Ce ARMAS Chugach Power 380 MW ae natural gas power generation station and its tie in to the Alaska Rail Belt high voltage electric transmission grid. Less than 10 miles to the east are numerous existing oil and natural gas :processing and distribution j esoro Refinery §systems supplying upwardsJESrertizerBxoort:of 50,000 bbi/d of oil and 400 omer Soe oy million cubic feet of natural ----gas to regional markets.The 20”Enstar high pressure gas line and 20”Cook Inlet Oil line running to the Drift River terminal are both within 10 miles of the proposed CTL site. Cook Inlet -Tyonek/Beluga/Redoubt Bay Barge unloading The Tyonek wharf is located on the northwestern shore of Cook Inlet near North Foreland,approximately 45 miles west of Anchorage,and 1.5 miles southwest of the village of Tyonek.This facility was constructed by the Kodiak Lumber Mills,Inc.,and is presently owned by the Tyonek Native Corporation.The wharf is not currently being used,but has been considered as a possible coal or timber loading facility if the area's coal or timber resources are developed. Currently,most of the bulk freight and heavy equipment used by residents and industry on the west side of Cook Inlet arrives by barge,off-loaded at one of four barge-landing areas.The Ladd Landing is located north of the mouth of the Chuitna River,between Tyonek and Beluga.This facility provides an important off-loading point for equipment and supplies for the Chugach Electric power plant,natural gas fields,coal and mineral exploration activities and the domestic needs of the families living in the Beluga area.The tidelands belong to the State of Alaska,while the 8 uplands belong to the Kenai Peninsula Borough.The Borough has entered into a lease option agreement with the Tidewater Services Corporation (an affiliate of Diamond Alaska Coal Company)to maintain future options for coal transfer at this site,while protecting existing uses.The village of Tyonek also has a barge landing beach,located within the community,which is used for off-loading local equipment, fuel and freight. Further south,at the mouth of Drift River,on the Redoubt Bay,there is a barge landing area and oil dolphin for exporting offshore oil from the Drift River storage facilities. The site for the coal mine and us Alaska CTL plant is rural, yining Limi ""fane,undeveloped land,with no paved}roads,water or sewer systems, propoeed fo gently rolling hills,several rivers,aCoalTransportiamodestamountoftreesandnoAUXESlocalpopulation.The closest Chuitna Group F-T Plant at Beluga North Foreland ct population is the Tyonek Native °A Village with approximately 150 people 10 miles to the east.=Within a 50 mile radius of the "proposed CTL site live approximately 350,000 people or more than half of Alaska's population.There are three loading landing docks on the west Shores of the Cook Inlet that can be used to deliver equipment and supplies to the CTL site via barges.The Port of Anchorage is located 40 miles to the north and can be utilized to transship heavy equipment and vessels to barges for delivery to the CTL site. The Alaska Railroad main line is located 40 miles to the north and could possibly be extended to the CTL site along with a road from the Anchorage population center with State and Federal support.The Alaska Railroad currently delivers coal from interior mines to the coast for export. |am available at any time to answer additional questions or provide additional clarification to the above comments. Richard Peterson President ANGTL Company Apr.27.2005 0:1SAM jAIDEA/AEA No.8443,P.2APR.cr'cuus 4226 ve 6990927 MOEA #6181 Liveee 1m5s& > PR Baa is Office of he Presidantoftha Republi of Chinas Mr.Mike Barry KNH-2005-001 Chairman of the Board April 25,2005 Alaska Industrial Development & Export Authority Alaska Energy Authority 813 West Northern Lights Blvd. Anchorage,AK 99503 U.S.A. Dear Mr.Barry, I would like first to express my gratitude to you and your staff again for briefing our government agencies and private sectors on the "Alaska Beluga Coal to Liquids (CTL)Project”during your recent visit to Taipei. We deeply appreciate the importance of coal liquefaction as a substitute for crude oil,one that can contribute greatly to the security of Taiwan's energy supply.On April 22,2005,we organized an ad hoc team composed of the Cabinet-level Council for Economic Planning and Development,the Bureau of Energy and Bureau of Mines under the Ministry of Economic Affairs,Taiwan Power Co.,Chinese Petroleum Corp.,and Formosa Petrochemical Corp.To further evaluate the feasibility of Taiwan's investment in an Alaskan CTL project. The team will complete a preliminary report at the end of July 2005,and we hope the results of the feasibility study can be presented to the Alaska side for reference during the second conference of the TATICC,to be held in Alaska in September 2005.In order to facilitate the preparation of this report,and to ensure its completeness and accurate,we ask that the Alaska side provide all relevant information and other details we may require,at your earliest possible convenience. =,Abre27.2005 10:15AM =AIDEA/AEA No.8443 P.3 Lhian'svw@: *P He R,Bl aa HE Again,{would like to personally thank Hon.Governor Murkowski and the Alaska government.for the long-term support of closer bilateral economic relations between our two sides.I also hope that.the successful model of cooperation between Taiwan and Alaska can serve as a basis for similar cooperation with other states in the U.S.A.in the future. Sincerely yours, /In fhayavg y;feyNing-Hsiang Kang Senior Advisor to the President CC: Hon.Frank H.Murkowski,Governor of Alaska,U.S.A. aF os a A rash5at NY oe yeeIEeae tara ees cl July 13,2005 ALASKA NATURAL GAS TO Liquios Mr.Mike Barry Chairman of the Board Alaska Industrial Development & Export Authority 813 West Northern lights Blvd. Anchorage,AK 99503 Responses for Republic of China Letter ICD-2005-083 -Alaska Coal to Liquids Dear Mike, |have prepared a response to Mr.Yung-Hsiang Chen,Director General Ministry of Economic Affairs July 13,2005,(ICD-2005-083)letter requesting additional information for the Taiwan ad hoc team investigating the Alaska Beluga CTL proposal. Before |get to the specific responses |would like to also refer you to my May 21,2005 response to the Republic of China Letter ICD 2005-056. Specific Responses to Question 1 through 5 1.Information on the human resource costs,such as engineering salaries,wages of general operators and personnel costs. The total amount of people that will support the Alaska Beluga CTL plant will be a function of the local labor pool and the relative cost of each skill set.Two identical sized CTL plants one in China and one in Alaska could have half of the labor requirement of the other.The FEED study will optimize the cost of automation vs labor, higher cost (longer life)catalysts and refractory vs labor to replace at earlier intervals. Alaska hasa fairly high labor cost structure for the petroleum industry based upon the higher cost of living in the 70's and 80's and the fact so many of the petroleum jobs required remote work sites.Today's cost of living in the Anchorage area is not much different from major population areas in the lower 48 and we believe most of the workers at the Beluga CTL plant will be from the local labor pool,living at home and commuting to work. Sasol has provided a labor requirement that ranges from 1200 down to 600 people for the CTL plant operation (excluding the mine).The FEED study will provide the balance between labor costs and capital expenditure.Our CTL model takes the expected O&M costs (excluding the mine)of $6 to $7/bbl and escalates this to $8 to $9/bbl for the Alaska location (cells B-97 and B-98 in the Beluga CTL model).Typical labor costs are 6%to 8%of O&M,plus another 2%to 4%for front end coal handling costs or approximately $26 million/yr.For an 800 employee plant this would average just under $33,000/yr,low for Alaskans in the petroleum industry.Adding an additional $1/bbl labor cost would raise the average compensation package to $$63,000/yr,well in the range for this area of Alaska.The exact break down of operators by plant section (gasification,air separation/oxygen,gas clean up,F-T reactors,product work up,waste treatment and power generation)including front office will be determined by the FEED study. 2.The estimated number of days per year of Beluga CTL Plant operation Cell B-119 of the Beluga model sets the CTL plant availability at 346 days.This is based upon having spare F-T reactors and gasifiers so that when catalysts are changed,refractory linings are replaced or upsets occur,plant throughput can be maintained.Just with world scale refineries or chemical plants,the CTL plant will be shut down for a major turn around every few years. Usibelli coal operates a coal strip mine 300 miles north of Anchorage and has not had a mine shut down due to weather in 60 years of operation.Tesoro Petroleum operates a 70,000 bbi/d crude oil refinery and Agrium operates a 1.5 million ton per year fertilizer plant both just across the Cook Inlet from the proposed Beluga CTL site.Both report that they have not had plant shut downs due to weather. Many people around the world believe Anchorage's winters are bitter cold.Just the opposite is true.Our winters are comparable with Chicago with an average January temp of 20 degrees F (-7C)and a typical winter temperature (November through March)averaging around 25 degrees F (-4C).A typical winter temperature for eastern Wyoming,area of the Power River Basin coal reserves is slightly lower than this.An extremely cold winter day in Anchorage may hit -10 degrees F (-23C),for Wyoming -30 degrees F (-34C).The Beluga area,just south west of Anchorage has similar weather to Anchorage. The tanker loading facilities at Drift River,35 miles to the South West of the Beluga site are ice free and the Port of Anchorage is open year round.The cool waters of the Cook Inlet offer both an area for discharge and supply;32 to 35 degrees F in the winter and 55 degrees F in the summer. Our summers are very mild,typically in the mid 60 degree F (18C)range with day light 19 plus hours typically allowing 24 hour construction.Summer average temperatures for eastern Wyoming are in the high 80's and low 90's.Anchorage,while being located 62 degrees north,enjoys the weather of a city 42 degrees north. Another advantage of the Anchorage site is that is at sea level unlike many of the coal areas of the western U.S.(Wyoming,Montana and North Dakota)that range from 3,500 to 6,000 feet elevation. 3 Cash flow analysis -(see attached Cash Flow Chart). The projected first year (2011)price for F-T diesel at the CTL plant tailgate is $1.06/gallon and F-T naphtha is 90¢/gallon. The 80,000 bbi/d CTL plant will have a total installed cost of $4.99 billion with an Equity Owner investment of $500 million and a Taiwan investment of $1.5 billion. Taiwan will receive a 5%per annum interest payment ($75 million)plus 90%of the market upside of F-T diesel and naphtha.Once all the costs to build the Alaska CTL plant have been calculated,the sales price for the F-T diesel and naphtha will be set at a price that will provide the Equity Owner with a pre-tax IRR of 25%over 15 years. Currently,the CTL plant model gives the State of Alaska and local taxing authorities 18%of the net cash flow in lieu of a fixed tax rate.The model also gives the coal provider and the CTL project developer 1%each of the net cash flow,reserving 80%of the NCF for the Equity Owner until Taiwan backs in for its 45%ownership. After Taiwan backs in for ownership the Equity owner receives 55%of the available NCF and Taiwan 45%. In addition,Taiwan and the Equity Owner exclusively share in the market upside until the CTL plant debt is retired.After debt service the market upside is included in the NCF and all parties share based on their %of the NCF. The expected cost of construction financing is 8%and long-term debt is also 8%. The first six months of operation no debt is paid,with one-half of the available cash put in a reserve account.Cash on hand earns 4.5%interest. The table below lists the expected costs for the CTL plant operation in $/bbI along with the projected annual inflation. In general,expenses are escalated at 2%per year while revenue streams are escalated at 1%per year.The project economics do not take into consideration the sale of alcohols,waxes,waste heat or other potentially saleable product streams. The expense of removing the CO2 from the syn-gas stream is included but any potential valueCTLPlantExpenseCost$/bb!|Annual Inflation %received from the sale O&M $8 2%of the CO2 or CO2 sequestering creditsContingency$1 0%are not included. Diesel Transport $5 2% Naphtha Transport $4 2% Royalty $2 2% Insurance $1 2% Coal ($/ton)$14 1% ONT)OOA_RTTOS cyike°(997)LOO fo &ea 4 Pricing of F-T Diesel and F-T Naphtha It is very important that everyone understand how the Beluga CTL model is utilized. Variable factors:such as the CTL plant CAPEX,cost of coal,O&M,contingency, transport to market,long term bank financing,construction financing,royalty and insurance;economic incentives;plus process efficiencies such as the ratio of diesel to naphtha,coal conversion ratio,CTL plant availability have all been ranged and the most conservative assumptions (higher operating costs,lower revenue streams and lower process efficiencies)have been put into the Base Beluga CTL model.They represent the data shown in the "Taiwan Energy Supply-Alaska Cook Inlet Coal "Billions of Barrels”. The data shown in the June 23,2005,letter represents more aggressive assumptions of some of the Variable Factors. The Base Beluga CTL model assumed a capital structure as follows: $1.51 billion supplied from Taiwan from 4Q 2005 through 4Q 2009 $500 million supplied from the Equity Owners from 1Q 2006 through 4Q 2009 Construction borrowing of $2.9 billion from 1Q 2006 through 4Q 2010 The pre-tax IRR for the $500 million of equity is assumed to be fixed at 25%for the purpose of computing the product pricing (F-T diesel and naphtha sales price)that will drive future revenue sharing.As the actual Variables are determined (fixed),such as the interest rate on the debt,capital cost of the plant,those inputs to the model are set. When the Variables are fixed at commercial startup,the actual product pricing (Fixed Product Price)will be determined for the Alaska Beluga CTL plant that will result in the Equity Owner receiving a 25%pre tax IRR on his investment and will determine the base level for revenue sharing. The equity investor is not guaranteed a 25%IRR as actual prices could fall below the Fixed Product Price assumptions and reduce the equity investor's return.Likewise, the equity investor's return is not limited to 25%as they will receive 10%of the savings between the product market price actually received and the Fixed Product Price until Taiwan recovers its $1.5 billion investment. When evaluating the Alaska Beluga CTL project with the model,Variable assumptions can be altered so that the resulting effect on the Fixed Product Price can be ascertained.The model run that used different aggressive assumptions (the ones included in the June 23 letter)assumed that the resulting changes in Fixed Product Price would be applied only to the diesel component of the F-T products.This was done for illustrative purposes.The pricing change as a result of these different assumptions could have just as easily been allocated between diesel and naphtha with each of the products reduced in price. The Alaska Beluga CTL proposal has Taiwan investing $1.5 billion over a 5 year period during plant design and construction.Once operational,Taiwan receives a 5%interest payment of,$75 million/yr until they recover their $1.5 billion investment.In addition, Taiwan receives 90%of the difference in price between the Fixed Product Price and the actual market price. As an example,if the California market price for F-T diesel is $1.65/gallon and the Pacific Rim market price for naphtha was $1.25/gallon ($52.50/bbl -$472/ton)in year 1 and the Fixed Product Price was $1.18/gallon for diesel delivered to California and $1.10/gallon for naphtha delivered to the Pacific Rim,then Taiwan would receive an additional payment of $425 million or a total of $500 million in year 1.If the California market price was $1.65/gallon and the US federal government energy credit of 50¢/gallon was in effect,then Taiwan would receive $920 million in year 1. If there is any improvement to the assumptions used in the model,Taiwan's return is directly enhanced. 5 Differences between "Taiwan Energy Supply-Alaska Cook Inlet.............++June 23 2005 letter” The Taiwan Energy Supply-Alaska Cook Inlet Coal "Billions of Barrels”model is the Base Case that we start from.We have assumed the highest costs and lowest revenues for the model.We have used interest rates that are above today's rates and project efficiencies below what Sasol has demonstrated in their current generation of coal and gas to liquids plants.Each of these Variables are projected to improve as we negotiate with Banks,complete the FEED study,negotiate with the state and local taxing agencies,negotiate with the federal government on depreciation schedules, negotiate with the coal supplier,work with the US Congress on providing energy credits to coal and bio-mass based F-T plants in the US,negotiate with commercial transport companies to reduce the cost of moving F-T products to Pacific Rim markets,negotiate with US Western States on providing motor fuels tax reductions on F-T diesel.Some of these savings,credits,and lower costs will affect the total CAPEX of the Beluga CTL plant resulting in a lower Fixed Product Price than that shown in the Base Case. Some of these credits and savings will apply to the value received for the market price of the F-T products. The intent of the Beluga CTL Development Team is to build the most cost effective, efficient,environmentally acceptable CTL plant using proven commercial F-T technology.All savings will be seen in the total CAPEX of the Beluga CTL plant as well as all process efficiencies will be used to lower costs.When the Beluga CTL plant has begun commercial operation,the Fixed Product Prices will be set at a rate that will allow the Equity Owner to earn a 25%pre federal tax IRR.Improvements in the costs structure of the Beluga CTL plant after commercial operation has begun will be shared 55%/45%.Market savings or market prices above the Fixed Product Prices shown in the model will be allocated 90%to Taiwan -10%to the Equity Owners until such time as Taiwan has recovered its $1.5 billion investment.Once recovered,market savings will be allocated 55%/45%(Equity Owner-Taiwan). In the Base Case Taiwan will receive $75 million per year in interest payments and will recover its investment in the Beluga CTL plant in 20 years.Assuming a market savings Talatatodat PPT ND ART rmCrh)grea iu B tied of 15¢/gallon,Taiwan will receive an additional $153 million per year for a total net cash flow of $228 million.At this rate Taiwan will recover its $1.5 billion investment in less than 7 years.At a 50¢/gallon market savings ($1.68/gallon delivered to California, less than today's$1.85 current wholesale price for CARB diesel),Taiwan will recover its $1.5 billion investment in less than 3 years.As you can see payout and Taiwan's back in for ownership depend upon the cash flow Taiwan receives each year. The June 23,2005 letter illustrated the effect of these Variable factors on payout timing.Because the Equity Owner also shares in the market upside (10%)their IRR improves with market price increases.Obviously Taiwan's IRR increases with market price increases also. |am available at any time to answer additional questions or provide additional clarification to the above comments. Richard Peterson President ANGTL Company Mbdcmali@aol.com,09:52 AM 7/13/2005,Fwd:letter Page 2 of 5 AY 2B INTERNATIONAL COOPERATION DEPARTMENT 'MINISTRY OF ECONOMIC AFFAIRS REPUBLIC OF CHINA TEL :(02)23 FAX :(02)23 Mr.Mike Barry ICT)-2005-083 Chairman of the Board July 13,2005 Alaska Industrial Development & Export Authority Alaska Energy Authority 813 West Northern Lights Blvd. Anchorage,AK 99503 ULS.A. Dear Mr.Barry, In reply to your June 28,2005 letter,J would Jike to inform you about the Lates7 situation of our ad hoc team on the Alaskan CTL project. In accordance with the time schedule of the report on the Alaskan CTL projacT mentioned in my letter of May 20,2005 (ICD-2005-058),the team will complete a preliminary report before July 25,2005.The team members have expressed that they prefer to not exchange ideas in the Alaskan side's presence at this time,but they urgently need the Alaska side to provide the followin financial information on the Alaska's CTL plant to supplement the financial evaluation section of the report to cnsure its completeness and accuracy. 1.Information on the human resource costs,such as,engineer salaries,wages )eencral operators,and personnel costs What is the estimated number of days per year that the Beluga CTL plant will be operational,considcring weather conditions? 3.Cash flow analysis 4 With recard ta YOUR sOYS CAmments an pricing F-T diesel and BotPrintedforRichardPeterson<rpeterson@angtl.com>7/13/2005 .Moddcmal@aol.comM,UIIZ AIL f/19/LuUS,wu.isis 2h ee oe <- fo 2a 5.We have found some differences between the data in your proposal if] "Taiwan Energy Supply-Alaska Cook Inlet Coal 'Billions of Barrels'ar the data proposal in the attachment of your June 23,2005,Ictter.For instanceg1)the time point of back-in for 45%ownership,2)the pricing of F-T dieseL and PT naphtha;3)commercial money;and 4)planned IRR. Moreover,further to my May 19,2005,letter (ICD-2005-041),the Taiwan sidZ °may consider dispatching experts to the coal processing plant in Wyoming fofon-site investigations after the plant is operational.Therefore,please keep WS informed of the progress of the Wyoming project. look forward to the pleasure of hearing from your early reply to my June X and July 12,2005,letters (I(CD-2005-075 and ICD-2005-082),as well as te this fetler so we ean proceed with the conference preparalions in a timel manner.dg Sincerely yours, Yung-Hsiang Chen . Director General CCl Mr.Frank Roppel,Chairman,AHPC Ms.Margy Johnson,Director,InternationalsTrade,Office of the Governor,State of Alaska Mr.Bill Noll,Director of Communications,State of Alaska,Offices of the . Governor Mr.Tom Irwin,Commissioner,Department of Natural Resources,State of Alaska Mr.Ning-Hsiang Kang.Senior Advisor to the President Mr.Sheng-Cheng Hu,Chairman,Council for Economic Planning andDevelopment,Executive Yuan as reve ,ae i veits anit .rut. Printed for Richard Peterson <rpeterson@angtl.com> é woe Naat eT AR tle ALE 7/13/2005