CERA-INTERVIEW-Coal exec eyes carbon control details

HOUSTON Fri Feb 13, 2009 12:51am GMT

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HOUSTON Feb 12 (Reuters) - The second largest U.S. coal producer, Arch Coal Inc (ACI.N), could support a carbon control program that helps develop technology allowing continued use of coal, Arch Chairman and CEO Steven F. Leer said Thursday.

President Obama has proposed, and many analysts expect Congress to pass, a program that caps total U.S. carbon emissions and allows companies to trade allowances as they find ways to comply.

"We think ultimately this Congress will pass a cap and trade," Leer said.

Coal-burning power plants emit 40 percent of the global-warming greenhouse gases produced in the United States. They also make 50 percent of the electricity.

The key to continued use of coal, Leer said, is carbon capture and sequestration, where carbon dioxide emitted by the burning of coal is captured and buried to keep it out of the atmosphere.

It is the technology identified by experts that could be brought on line to attack global warming. The problem is it has not been proven on the scale needed to reduce power-plant emissions significantly.

"We could have a cap and trade that would be very negative to coal, and we could have one that would direct some of the funding to carbon capture and sequestration.

"Where it's driving research and development of carbon capture and storage technology, we could be supportive, but the devil's in the details," Leer said.

"We've developed technologies that have massively improved the performance of coal in terms of criteria pollutants," he said, referring to successful control of acid rain and particulate emissions due to coal-fired power plants.

"The next challenge for technology is CO2," Leer said.

Leer said Arch is well positioned to ride out the economic slowdown. Its production is largely steam coal, not the metallurgical coal that has suffered from the decline in steel production.

"If the spot market stays more or less where it's at, we would project that our average pricing actually increases each year going forward," Leer said, explaining the cheap contracts expire and higher priced deals made in 2008 take effect.

It also helps Arch's outlook that most of its production is PRB coal, which has been selling for about $15 a ton, did not participate in the coal price boom and has not fallen as fast as other grades, Leer said.

Arch expects economic recovery to begin in late 2009 or early 2010, Leer said, and when it does, Asia could be the next big market for PRB coal, Leer said.

Arch recently announced firm contracts to deliver at least 1 million tons of the Wyoming coal each to China and India, and Leer said it could grow as a substitute for Indonesian supply.

"It could become - emphasis on 'could' - a very intriguing piece of business," Leer said. (Editing by Christian Wiessner)