Price spikes cause North American mills to seek quick returns on energy projects

Pulp & Paper, Apr 2001 by Ferguson, Kelly

Plainwell Inc.'s California mill, forced into a short shutdown, squeezed out dramatic savings through rapid negotiations, improvements in energy efficiency

Special Report. Energy and the Paper Industry

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.

"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 multipronged 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.