PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
As the price of crude oil hovers near $30 a barrel, red flags are being raised at even the most energy-efficient companies. But are U.S. manufacturers panicking? Not yet. As it turns out, the sector that consumes more than 40% of the nation's oil has been making better use of energy for decades.
To be sure, rising energy costs are breathing life back into some older conservation ideas that tend to take root when prices are high. For example, lighting technologies that remove moisture from the air -- so-called descent lighting -- are coming into vogue with many companies that want to cut refrigeration costs. Many chemical and petroleum plants are using excess steam from boilers to generate air conditioning of their own -- a method known as combined heat and power.
"A number of companies used these methods years ago, and eventually they fizzled out. But with the increase in energy prices, they are starting to come back," says Neil Elliott, a senior associate at the American Council for an Energy Efficient Economy.
FUEL SWITCHING. Many experts believe that today's higher prices should give manufacturers that have fallen behind the competitive curve the incentive they need to innovate -- especially since electricity, natural-gas, and oil costs are simultaneously rising in most parts of the country. In the '80s, when the price of oil was high, many companies alternated with natural gas, instead of adopting other energy-efficient techniques.
But in this environment, switching fuels isn't going to offer much of a price break, and some companies have to admit they loosened their grip on other conservation techniques. "There is clearly a reluctance on [the part of] some facility managers now to admit that their energy-efficiency matters haven't been as good as they once were," says Charles Cottrell, manager of industry affairs at the North America Installation Manufacturers Assn.
When natural-gas prices started to climb this year, forest-products company Weyerhaeuser in Longview, Wash., decided to boost conservation efforts at its round-the-clock paper and pulp mills. Although Weyerhaeuser relied on natural gas for fuel, the company began to use less-polluting grades of coal to cut costs. It made sure its lighting, motors, and installation were up to snuff, too. "Although small increases in energy costs can really affect a company's return, it's not significantly changing the way we operate," says spokesman Frank Mendizab.
ONGOING GAINS. And why should it? The company is a veteran at coping with volatile energy prices. Weyerhaeuser had already assessed and implemented the use of steam, hydropower, and thermal energies to cut costs. And that was two years ago, when oil prices were near 12-year lows.
From paper mills to steel plants to glass-blowing factories, similar conservation efforts are taking place across most manufacturing industries. Corporations haven't seen higher energy costs much in the past few years, but they've had other impetuses to increase efficiency. "In manufacturing, there has always been some political or economic benefit to be gained from conserving," says Mitch Rosenberg, vice-president of Xenergy, an energy-consulting firm. "Rising costs are just going to make people look at conservation a little harder."
According to the National Association of Manufacturers (NAM), 85% of its members have adopted some form of energy-efficiency technology in the past five years. And it goes back longer than that -- many began tightening up facilities when energy costs went through the roof in the '70s. Since then, government regulations, coupled with a fiercely competitive business environment, motivated most manufactures to stay in the energy-savings loop.
KEEPING TABS. Simple things -- like replacing aging machine fans, belts, and compressors with more efficient innovations -- have continued to cut energy costs at most plants by as much as 15% a year, experts say. And more advanced systems, such as compressed-air and heat-exchange networks, are being used by more companies each year to generate cheaper power.
One way to think about the ongoing energy-conservation effort is to look at how much crude oil it takes to produce a unit of the nation's gross output of goods and services. In 1980, it took $16.47 to produce one unit of gross domestic product (GDP), but by 1995, that figure had fallen to $13.44. "Permanent structural changes have been taking place in manufacturing processes that will not reverse themselves when prices drop," says Amy Jaffe, a senior energy analyst at Rice University in Texas. Seems even when oil prices were low, manufacturers were keeping tabs on waste.
Examples are plentiful. Take consumer-goods giant Johnson & Johnson, which has reduced its energy usage 21% since 1991. The company replaced inefficient air conditioners and chillers, upgraded lighting, and implemented an energy-management system that continually monitors and identifies cheaper energy sources. As for the recent price spikes, "It won't necessarily change the way we do things, but it may accelerate the implementation of some practices," says J&J engineer Harry Kaufman.
BURNERS AND BLOWERS. Bethlehem Steel is another case. It recently developed a steel burner that reduces the amount of fuel wasted in some parts of production by 60%. Would the company have taken that initiative without sharply rising fuel costs? The industry's track record says yes. Since 1975, the amount of energy required to produce a ton of steel has fallen by 45%, mainly through the use of more efficient boilers.
Small manufacturers in the glass-blowing industry, which typically uses twice the amount of energy necessary in production, were also focused on conservation long before prices started to escalate. A group of glass blowers in West Virginia began working with the National Association of State Energy Officials (NASEO) last year to develop a more efficient laser cutter. They now have reduced the amount of energy used in the process by half. "Everyone has always been driven from a cost-savings point of view. Now, smaller manufacturers are really starting to change things, too," says David Terry, director of the NASEO.
So who will be hardest hit by the rising prices? Most analysts think it will be the smaller manufacturers that don't have the technology or capital of big companies like J&J, DuPont, and Alcoa. According to the U.S. Energy Dept., many small manufacturers no longer have extensive management teams in place to implement energy-savings techniques.
LITTLE THINGS. In recent weeks, they have been flocking to government agencies and outside consultants for help. "Some corporations are in shock right now", says Gill McCoy, an energy engineer at Washington State University who offers environmental consulting. "Manufacturers keep calling to find out how they can put together energy-management teams to assess their plants and find out where their wastes are."
A lot of commercial waste still comes from improper thermostat settings and wasteful lighting, experts say. (Those are also the main energy-wasting culprits in the home.) According to a July survey by the NAM, 40% of the nation's producers say they're seriously considering implementing employee energy-efficiency campaigns to cut down on those little costs that add up.
But because so many big manufacturers believe that prices will soften early next year, they haven't been placing panicked phone calls to energy consultants. At least not yet. They did that in the '70s -- and have been making good on that advice ever since.
By Nicole St. Pierre in Washington Edited by Beth Belton
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
