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The price of natural gas in the United States has reached $13 MBTU - double the price one year ago and six times the price seven years ago - according to the National Association of Manufacturers (NAM), Washington, D.C. NAM President and CEO John Engler recently likened that price to paying $7 a gallon for gasoline.
In the short term, the problem is an issue of supply and demand, says Peter Noland, president of Strategic Energy Process, LLC, a software development and consulting company with a focus on utilities and energy. He presented "Sustainable Energy for Manufacturers," a webinar hosted by NAM on Oct. 20.
Hurricane Katrina affected 16 percent of U.S. natural gas production, and it will take months for that gas to get into the market. In the long term, however, the historical up and down demand cycle has given way to a general higher level of demand, which drives up prices. Also, the supply of natural gas affects electricity costs, as natural gas now accounts for 18 percent of U.S. electric generating capacity - up from 11 percent in 2000, according to Noland.
Whatever the reason, the price has become an issue for consumers and business owners alike - especially manufacturers, who consume one-third of the U.S. natural gas supply. A recent NAM study indicated that 45 percent of small and mid-sized manufacturers will be forced to lay off workers or impose wage freezes or reductions.
Folding carton converter Zumbiel Packaging, Cincinnati, is one company that's taking steps to conserve. Ed Zumbiel, vice president, beverage packaging, acknowledges that margins are being squeezed by skyrocketing natural gas-related production and raw materials costs, as well as suppliers using the crunch as a pretext for jacking up prices - but his company is not panicking.
Zumbiel is enlisting its procurement and operations personnel to find ways to control how the company pays for and consumes energy.
Controlling Price-The 2005 Energy Bill has encouraged savings opportunities, including demand response and energy efficiency programs. About half of U.S. states now have active demand programs, where utilities encourage customers to reduce their consumption when energy prices are high or when supplies are tight for a reduced rate.
Zumbiel's plants run on an interruptable supply of natural gas with propane gas as a backup. The facilities have enough propane to run on for two or three days. "We get a cheaper rate and we've never had our natural gas supply interrupted...But we do keep the propane tanks topped off and ready to go, just in case."
Energy efficiency funding is available again in many states, too. These rebates help companies cover the cost of revamping their energy systems. Utility public goods benefits and demand-side management funding will approach $2 billion this year, with most money spent in California, New York, New Jersey, New England, Texas, the Pacific Northwest, Wisconsin, and Michigan, Noland says.
Taking advantage of these programs is as simple as making a phone call to your utility. Ask for your utility account manager or, if you don't have one, ask for a business/commercial/industrial account manager. Inquire if there are financial incentives for demand response and energy efficiency.
When negotiating, take a tip from Matt Shortall, vice president of Affiliated Power Purchasers International (APPI), a Salisbury, Md.-based utility consulting company that partners with hundreds of trade associations like the Association of Independent Corrugated Converters. "The main thing with any contract, and this goes for business in general, is that obviously price is important, but the terms and conditions of the contract itself can be equally or more important," he says. "If the supplier is offering a low rate, but the terms and conditions of the contract allow them to change that rate for some reason or assess a fee or penalty if something particular happens, it can make that rate they're offering to you null and void."
How Demanding-On the demand and usage side, there's more within a manufacturer's control.
Zumbiel has installed meters on older equipment for more accurate usage predictions "because the gas and electric companies will nail you with penalties if you miscalculate your nomination values."
Along the same lines, Zumbiel is reevaluating machine center utilization during the energy crunch. "As a practical matter we're loading more work onto the more energy-efficient production lines and minimizing our use of less energy efficient lines."
Tactics like these may be easier to analyze with wireless energy management, Noland says. It's new to the market (about a year old), and is offered by the major players like GE. Wireless energy management uses simple web-based, "smart" control of individual energy loads (like lighting, HVAC, motors, EMS system, etc.), which helps optimize performance of all energy-consuming assets. "It builds a layer on top," Noland says. "It's a low-cost way to extract extra mileage out of all the energy assets and measures within a facility."
Tune-Up Time-Extra miles also can come the good old way. "All facilities could use a tune up," Noland notes. Industrial electrical distribution systems are often inefficient, and some of the power you're paying for is being lost. "It ensures that individual measures don't have to work harder than necessary." He suggests replacing individual components throughout the plant like wiring, connectors and technical components (see sidebar x for more low-cost tips). "If you're working with an energy firm, spend the extra 10 percent to do this," Noland says.
Of course, knowing what exactly needs to be tuned up may have to come from an outside source. Whether it's from a consultant, a trade association or the utility company itself, third parties can often discover savings opportunities you can't see. Two options exist: plant walk-throughs for facility-type improvements or on-paper audits of rates, fees, tariffs, and other contract-type evaluations.
Both consumers and business owners hope price relief will come soon. As Zumbiel continues to do "some common sense stuff and some more sophisticated stuff," he remains optimistic. "We believe the price of natural gas is going to come back down to reality reasonably quickly," he says. "It's a tough problem, but we've all got it at the end of the day. And hopefully it's temporary." OBM
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