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Brent Hawkins fully realized on the Tuesday before Thanksgiving last year the impact that escalating natural gas costs would mean for his California printing papers mill—a shutdown in December.
As mill manager at Plainwell Inc.’s Shasta mill in Anderson, Hawkins had watched gas prices go from an average cost of $2.75 prior to August (gas costs are listed in $/thousand ft3) to $5 in early fall. Prior to Thanksgiving, gas futures were at $14 and still climbing. Hawkins and senior management at Plainwell made the decision to shut down the mill on December 4, but immediately took action to make operational changes that allowed a partial restart on December 11 and full operation by December 18 in a situation where the mill is far less affected by energy swings.
Mills throughout the U.S. were stung by the rapid rise in energy costs in late 2000 and early this year. Especially hard hit were mills in Pacific Northwest states, led by California, where high energy use and power plant downtime combined with regulatory-driven supply and demand problems to drive operating costs through the roof.
But while some companies and specific mills suffered, others, such as Longview Fibre, were actually able to benefit from the situation. In a quarterly report, the company said it had electrical power sales of $26 million in the months of November, December, and January, which improved the company’s overall operating results.
Like the Shasta mill, this winter’s energy “emergency” has focused mills on trying to find quick solutions to reducing their energy use and costs as well as trying to limit the financial risk of wide energy cost swings. Projects that hadn’t previously been cost-effective have suddenly offered almost immediate payback, and energy hedging has quickly become a more viable tool both financially and operationally.
SHASTA’S STORY. Hawkins comments that coming into the fourth quarter of 2000, Plainwell knew that something big was on the horizon because of the climbing price of gas futures and the way the California energy market was behaving. The mill’s budget for natural gas was based on an average price of $2.75. The mill’s gas contract, according to Hawkins, is fairly standard, taking the average price on the last day of a month and the first day of the next month and indexing based on that price.
The Shasta mill’s natural gas was primarily used to fire three onsite power boilers. The gas was contracted independently of California-based utility Pacific Gas & Electric, but PG&E was paid a line transmission fee. However, the mill also purchases steam from a nearby co-generation facility (Wheelabrator Shasta), with the steam price indexed to the price of natural gas.
Following the Thanksgiving holiday, Hawkins went to Plainwell’s corporate headquarters in Minneapolis to discuss the energy situation. Meanwhile, gas prices continued to climb.
“During that time, we realized that we couldn’t continue operating the mill, and we made the decision to shut down as soon as possible and implement some cost-saving strategies,” Hawkins says. “At that point, we hadn’t even yet determined if we could get the mill running again during the month of December.
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Energy Saving Checklist
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The following is a checklist of energy saving tips from engineers at BE&K Engineering in Birmingham, Ala.
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Boiler Fuels
• Fuel conversion efficiency improvement through air/fuel controls upgrade.
• Combustion of traditional “waste” fuels—wood waste, paper waste, turpentine, methanol, tall oil sludge, waste treatment sludge, biomass (peanut hulls, etc.), refuse derived fuels (tires, etc.), landfill methane gas.
• Use of heat recovery steam generators (HRSG) for combustion of waste gas streams, i.e., low volume-high concentration (LVHC) gas, turpentine, methanol, stripper off-gas, etc.
Power Boilers
• Minimize exhaust flue gas temperature above acid dew point.
• Optimize heat recovery from flue gas to combustion air.
• Minimize excess air and oxygen level in flue gas.
• Minimize steam drum blowdown for water/steam quality control.
• Optimize soot blowing for maximum thermal efficiency.
Recovery Boilers
• Improve liquor fuel conversion efficiency through combustion air delivery system upgrades (temperature/pressure/injection ports/controls/port rodders).
• Reduction of chemical “dead load” in pulping liquor cycle.
• Conversion of cascade units to low odor design with attendant improvements in recovery boiler thermal efficiency.
• Optimize soot blowing for maximum thermal efficiency.
• Use indirect steam heating for liquor firing temperature control.
• Minimize excess air and oxygen levels in flue gas.
Evaporators
• Optimize configuration (number effects: 6-8) for maximum steam economy.
• Optimize vacuum on back end of evaporators to maximize Delta T.
• Minimize pulping dilution factor to reduce water load on evaporators.
• Recover steam condensate to power plant.
• Optimize boil-out and cleaning cycles for maximum tube heat transfer rate.
• Optimize soap recovery in softwood liquors to inhibit tube scaling.
• Maximize quality of process condensates for recycle to pulping process.
• Maximize product liquor percent solids for optimum thermal efficiency in recovery boiler.
Co-generation
• Maximize inlet throttle steam temperature and pressure for optimum efficiency.
• Minimize extraction and exhaust steam pressure levels for optimum efficiency.
• Minimize high pressure extraction flow rates and maximize low pressure exhaust flow rates for optimum output.
• Maintain turbine seals to optimize efficiency.
• Maintain high level of steam quality to inhibit scaling and corrosion of turbine.
• Upgrade turbine wheel design for greater power output.
• Maximize vacuum on condensing turbine units for optimum efficiency.
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• Operate generator near unity (1.0) power factor for maximum output.
• Minimize use of steam pressure reducing valves.
Pulping
• Maximize indirect steam heating.
• Maximize steam condensate recovery to power plant.
• Reduction of chemical “dead load” in pulping liquor cycle.
• Maximize batch digester blow heat recovery.
• Maximize continuous digester flash steam recovery.
• Maximize use of evaporator condensates for brown stock washing.
• Recycle cooling waters to mill warm water system.
• Minimize pulping dilution factor for reduced evaporator load.
Bleaching
• Use bleaching inter-stage filtrates for process heating requirements.
• Maximize use of low pressure process steam for fresh heating requirements.
• Maximize recovery of fresh steam condensate to power plant.
Paper Machine
• Maximize recovery of low pressure flash steam to dryers using thermo-compressors.
• Maximize recovery of steam condensate to power plant.
• Maintain dryer safety relief valves to minimize venting.
• Optimize pressing operation.
• Install shoe presses.
• Use flash steam to heat makeup air to dryer hoods.
• Close the machine white water system.
Wastewater Treatment
• Minimize primary effluent temperature through mill process heat recovery.
• Utilize primary wastewater to indirectly heat mill process water.
• Minimize aerator electrical power to meet discharge wastewater permit limitation.
• Maximize sludge dryness prior to combustion.
General
• Recover all process cooling water to mill warm water system.
• Maximize use of steam turbine or electrical drives per relative cost of fuel and power.
• Minimize use of cooling towers for process cooling.
• Operate minimum number of fans on cooling tower units.
• Maximize use and design of heat exchangers for process cooling and heat recovery; consider pinch analysis.
• Replace constant speed electric drives with variable speed drives for power savings.
• Maintain and upgrade process line, vessel, and tank insulation standards.
• Monitor and maximize return rate for process steam condensate.
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“At the prices we operated during the first three days of December, it was costing us more than $100,000/day more to operate the plant than it did in November. We knew that if we operated the plant at the prices we were seeing the first three days of the month, it was going to cost us approximately $3.5 million more in natural gas to run the plant in December. And not only did the gas prices stay at that high level, they actually went to $60 the second week in December.”
The mill shut down Monday, December 4 at 8 a.m., with all but 16 of approximately 460 employees told to stay at home. The remaining employees set out on a series of aggressive energy initiatives that enabled the mill to restart sooner than company management imagined it could. “By Wednesday (Dec. 6), we announced we’d be starting the coating complex up on Monday (Dec. 11),” Hawkins says. “The pulp mill was restarted on Friday (Dec. 15), and the mill’s uncoated paper machine was started up on Monday (Dec. 18).”
NO SILVER BULLET. Hawkins is quick to point out that “there was no silver bullet in any of our initiatives to get us the overall savings we would need.” A multi-pronged approach ranged from fuel diversification to shutting off the mill’s heating, ventilating, and air conditioning (HVAC) system.
The first part of the strategy was to diversify the mill’s fuel base as fast as possible to move away from natural gas. The lime kiln, which had been fired on 100% recycled oil, was switched to a mix of 60% petroleum coke and 40% oil. The mechanical system necessary to fire this mixture was already in place but had not been used since about 1992 due to the favorable price of oil. Since oil was in short supply, this switch freed up the mill to use the oil elsewhere, primarily in the recovery boiler, where steam generation was maximized by burning a mixture of black liquor and oil.
“A second part of our strategy was to explore who is in business with us that would suffer when we are down and whether we could get help from them,” Hawkins says, pointing first to the nearby co-gen facility and also to the mill’s union. The co-generator fires biomass (mostly wood), but the mill’s contract was based on steam indexed to the price of gas.
“That facility needs us for their long-term viability,” he says. The mill renegotiated its contract, and as Hawkins puts it, “they came back with a very attractive offer that was the foundation of being able to run the mill.”
The mill uses as much of the steam as possible to offset natural gas-generated steam from the onsite boilers. Table 1 shows how the mill’s steam sources changed.
TABLE 1. Plainwell shifted its steam resources to minimize natural gas use.
Hawkins and company managers also asked the union for a concession on their contract, which included a “bumpback” provision that employees with seniority would be allowed to retain positions if layoffs of more than three days occurred. “We couldn’t afford to have the mill double-staffed through the month, only running partial production, and we also couldn’t afford to incur almost $100,000/month in training costs to ensure smooth operations during that time,” he adds.The vote was overwhelmingly supportive and allowed the mill to get equipment in operation more quickly. The concession covered a period ending January 15, 2001.
The final prong of the strategy was to find ways of saving energy or reducing costs within the mill, in addition to a host of energy-saving projects that had been done in the past two years (see sidebar, “Shasta’s Energy Saving Projects”).
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Shasta’s Energy Saving Projects
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Steam projects
• Installed spoiler bars on both paper machines and the off-machine coater
• Installed double doctors on both machines
• Various projects for paper mill condensate heat recovery
• Various projects for pulp mill condensate heat recovery (four different projects)
• Improvements in the recovery boiler air system
• Reduction in tray heating for the No. 1 paper machine
• ncreased the size press moisture target
• Restarted the third press on the No. 2 paper machine
• Turned off the HVAC system in the paper mill
• Installed slotted uhle boxes on wet presses for both machines
• Reduced direct injection steam in the bleach plant
Gas projects
• Installed new infrared unit on the off-machine coater
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Electrical projects
• Trimmed the fan pump impeller on the No. 2 paper machine
• Installed 14 variable frequency drives
Future projects
• Perform additional heat recovery project and change procedures to further reduce total steam demand
• Negotiate a lower purchased steam price from steam generated on the waste heat boiler (energy not directly affected by gas price)
• Improve combustion controls on the recovery boiler to improve efficiency and reduce or eliminate supplemental oil consumption
• Evaluate and install improved mill lighting and drives to reduce electrical demand
• Lock in a recycle oil price of $0.51/gal
• Evaluate further process changes to reduce energy consumption
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“We didn’t prioritize projects based on how much they would save us, we just did as much as we could because the return was significant on even minor projects,” Hawkins says.
Steam leaks and compressed air leaks were one significant issue. “We had been running a long time without downtime and had not had an opportunity to repair the steam system,” he says. “When we started the mill back up, there wasn’t a steam plume from anything in the mill that was related to the steam system or the condensate system.”
Moisture on the size press and reel was increased, and all unnecessary steam use throughout the mill was eliminated, with the process now providing building heat. The mill also benefited from a number of low-cost heat recovery projects. One example is that the mill return condensate system was atmospheric, so there was quite a bit of flashing. Mill technicians diverted that return condensate to heat paper machine shower water that had previously been heated with live steam.
Overall, the mill was able to reduce the amount of steam it purchased by 12%, as well as lowering the average purchase cost. Total purchased energy cost has risen, but the shift in energy generation and the conservation projects avoided approximately $600,000 in energy costs for the month of January had no changes been made. And where the mill once operated three boilers plus a steam line, the entire facility is being run on one boiler (burning about 30,000 lb/hr of natural gas) and one steam line. “It’s been a big shock to people that we are now basically indifferent to the price of gas,” Hawkins says.
“Prior to fixing all this, we were roughly five to seven times higher on the price of natural gas than mills in the rest of the country,” he explains. “That made it hard to compete, because we’re the only integrated coated paper mill in California. Now I have an energy advantage over most mills, because we’re operating the mill quite a bit cheaper after this adversity than we did before.”
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To Hedge or Not to Hedge?
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Energy price hedging took a leap forward on the list of cost management tools as energy prices made their dramatic climb at the end of 2000. But, as with any risk proposition, paper companies have to consider it on a case-by-case basis.
“We had looked at buying gas futures back in June 2000,” says Plainwell’s Hawkins, “and honestly what we saw is that you pay about 15% to 22% for the hedge based on any 10-year interval you look at compared with spot pricing. Since we’re a rather new, small company that’s leveraged, we didn’t see where we could afford to give up the 22%. We elected not to hedge—a big mistake. If I had hedged, I could have paid off all my debt in December by selling my contract.”
Based on all the operational changes the company made, Hawkins says the mill’s ability to change its mix of fuels now provides their ability to hedge. “If we didn’t have that ability to change fuels, we would be hedging.” He adds that, “One of the things we may do—and we have this ability because we’re private—is in the future we may consider hedging if we think the energy market is going to experience more wild swings. We could sell our hedge and run on oil when the price is high and use that money to reduce debt.”
Bob Anderson, director of the pulp and paper group for Enron Industrial Markets in Houston, Texas, indicates that, not surprisingly, there has been a greater interest in ways to mitigate price spikes by looking at longer-term strategies, such as price hedging. But he’s quick to point out that hedging is risk management, something that he says mill managers don’t always remember.
“Mills are looking at it from the cost aspect, concerned that the price they lock in today will be higher over the long term than the spot market price in the future,” he says. “But the hedge price is not a prediction of what prices will be in the future but what energy markets are trading at today for a long-term contract. Therefore, sometimes the hedge price will be higher than spot, and sometimes it will be lower. Hedging is a strategic decision, not opportunistic.”
Companies like Enron are also offering other options to possibly mitigate the effects of price spikes. Some of these include the offer of below-market power in exchange for payment with pulp or paper product in the future. “The feeling from our end is that there is less volatility in the paper markets than in the power markets,” Anderson says. Another option is for a company like Enron to invest its own capital for mill energy infrastructure upgrades in exchange for a 10-year energy contract with a guaranteed reduction in the mill’s base energy cost. “Our bet,” Anderson adds, “is that we can generate more savings.”
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Hawkins adds, “I’m convinced that if the mill hadn’t been down we couldn’t have done what we did. How do you focus a complex organization comprised of your people plus other organizations on the fact that you have to take decisive action? Our first decision—taking the mill down—wasn’t really a decision at all. We didn’t have a choice. The things that happened after that were really legitimate decisions.
“Also, we made a decision not to rely on the political process. There was nothing in the political process that could give us relief in the timetable we needed. So we had to rely on the people who had common interests with us. I think those are the reasons we’re running today.” *
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