Serious concerns about energy cost and supply date to the early 1970s, when an Arab oil embargo sent fuel prices skyrocketing. Instability and wars in the Middle East, pressure by environmentalists to curb exploration and drilling, and soaring demand from a rapidly industrializing Third World have been major factors periodically propelling prices upward in the ensuing decades. Between peaks, prices moderate, even sink, as recessions curb demand or producers cashing in on the high prices boost production—and then a supply glut forces prices back down.
Energy conservation in heavy industry has always been a function of the cost equation. Companies respond with conservation efforts and innovative technologies when the price pressure is on, then relax when it is off.
Today, energy costs are again in the forefront of metals company concerns. With oil prices at a record high, dwindling domestic natural gas supplies pushing up the cost of a major energy component for many plants and the once-reliable electricity network in increasing jeopardy, companies are responding with a renewed sense of urgency.
In Crawfordsville, Indiana, a Nucor Corp. pilot plant is turning out light gauge carbon steel utilizing a new twin roll casting process that reduces by more than 80% the energy costs of turning molten steel into finished cold coil.
A short drive up the road in Lafayette, managers of an Alcoa aluminum extrusion facility realize an estimated $1.9 million in annual savings after converting from steam to direct fire natural gas heating, and implementing other recommendations in a comprehensive written energy assessment.
About 100 miles to the northeast, in Columbia City, operators on the melt shop floor at a Steel Dynamics plant frequently check a computer screen displaying current electricity costs to determine whether to purchase and keep operating or shut down until prices moderate.
Meanwhile, in Newburgh, near the Kentucky border, Alcoa's aluminum smelting and fabricating operations have cut natural gas consumption by 25% by rethinking preheating processes to reduce the amount of energy that was literally going up the stack.
These snapshots from the Hoosier state exemplify efforts at metals plants around North America to rein in rising energy costs with initiatives ranging from innovative technologies, to equipment replacement, to cost-controlling contracts, to process improvement programs.
During the past five years, volatile prices and concerns about the reliability of future supplies have brought energy issues to the forefront of challenges facing U.S. and Canadian manufacturers. In recent months, concern has focused on natural gas prices, which hit a high in December of $6.25 per thousand cubic feet at wellhead, triple the average price in the 1990s.
“Recent natural gas market conditions represent a significant cost problem to healthy steel companies, and a potentially fatal problem to weak ones,” Guy Ausmus, purchasing manager at Mittal Steel's Ispat Inland Inc. subsidiary and chairman of the American Iron and Steel Institute's Energy and Climate Committee, told a Congressional subcommittee last year. “[At Ispat Inland] we fight like cats and dogs for a 50-cent per ton decrement in manufacturing costs, and gas has given us a $5 to $9 increase in cost.”
The Aluminum Association attributes the loss of 2 million U.S. manufacturing jobs since 1998 largely to energy prices. Meanwhile, plant shutdowns due to failures in the electric grid delivery system have driven other companies out of business or out of the country.
While solutions to the complex issues underlying energy pricing and reliability are largely dependent on breaking the gridlock over comprehensive energy policy legislation (See “Not In A Hurry,”), some metals companies are taking immediate, internal steps to stabilize costs and improve reliability.
Companies viewed as leaders in energy conservation say the key to their energy cost savings success is adherence to the basic business fundamentals of goal setting, benchmarking and employee involvement. A thorough written assessment of energy usage at every plant—which may be done internally or in conjunction with experts from the local utility, consulting firms or the Department of Energy—provides the foundation.
At all Alcoa Engineered Products plants, a formal 20- to 30-page written assessment by a team of experts from inside and outside the company “looks at the operation from top to bottom, wall to wall,” says Jim Bollenbacher, vice president of environment, health and safety, who is working to meet a 2005 goal to reduce energy costs by 7%. Decisions on implementation are made after further study at the plant level.
While assessments have achieved substantial cost savings through such measures as changing the heating system in Alcoa's Lafayette plant and replacing lighting systems at two other plants, recent energy cost spikes have caused Alcoa to take a second look at even bigger investments.
“Waste heat recovery has been around for several years. It's expensive, but we are looking at it again now because it is such a big opportunity for energy cost savings,” Bollenbacher says. The company has installed regenerative burners, which recycle warm air from within the furnace, at a number of plants and is looking at the energy saving potential of electromagnetic pumps.
THE KEYS TO ENERGY
CREATIVE SOLUTIONS INCLUDE
But not all energy savings programs require a big investment. By re-engineering how aluminum ingots are preheated prior to hot rolling, Alcoa's Warrick Operations in Newburgh reduced the preheating cycle time by an average of 25.8% with a commensurate savings in natural gas use—with zero capital expense.
In Canada, where metals companies face similar challenges from rising energy prices, Dofasco employed cross-functional internal teams to conduct energy audits. Results include programs to inspect and repair steam traps and to detect leaks in compressed air systems, says Carolyn Barnes, manager of energy conservation. The use of new technology, such as LEDs (light emitting diodes) for certain lighting applications, is encouraged. Another electricity saving project planned for 2005 is the installation of a soft start on a fume fan to allow the fan to shut down in idle periods.
To drive continuous improvement, Dofasco appointed energy coordinators for each of the process areas. Energy performance is tracked monthly. Employee involvement is an integral element. Since 2003, office workers have been enlisted in a turn-off-the-lights program, and in April the company launched energy conservation skills workshops for 500 people and computer-based awareness training for all 7,000 employees in its Hamilton, Ontario, plant.
Roger Baker, a senior engineer at ComEd, an electric utility company based in Chicago, says energy assessments like those at Alcoa and Dofasco can result in savings of 15% to 25%. In metal casting plants, for example, Baker often finds 40% of the energy going up the chimney. “By replacing open reverb melters with stack melters, instead of 40% of the heat going out, only 7% or 8% goes out,” he says.
Other improvements can result from scrutinizing logistics and evaluating the cost-benefit ratio of re-designing the plant layout. “How the product moves around the plant is something we look at,” Baker says. “For example, by moving the ingot closer to the melter, you don't have to move the forklift so far. It's amazing how much energy can be used by moving things around.” However, Baker notes that such re-designs can be costly, with a payback period of up to six years.
At Samuel, Son & Co., Ltd.'s steel processing service center in Hamilton, Ontario, a simple plant design change is yielding significant savings. The plant previously had a compressor for each of its seven cut to length and slitter lines. By moving four compressors to one location, eliminating three altogether, the company saves energy. Most of the time, only two compressors are needed for five lines, says Maintenance Supervisor Al Robinson. That results in a daily electric bill savings of C$50, or about US$41, with an added benefit of significant noise reduction on the plant floor. The payback period will be less than two years, Robinson says.
Joe Russo, senior vice president at Lisle, Illinois-based IPSCO Enterprises, says energy conservation is stimulated by quarterly benchmarking meetings and best practice sharing among the company's three facilities. A Six Sigma program has spurred equipment and process changes that reduced energy costs $2.5 million last year. For example, the company modified the size and design of carbon/oxygen lances, improving the yield and therefore lowering energy costs on a per-ton basis. “We changed the depth of injection into the furnace as well as the flow rate,” Russo says. “We also changed the timing of the introduction of the lances into the furnace. These were primarily designed to make the most judicious use of oxygen, taking into account the price differential between electrical and chemical energy.”
“We spend a lot of time as slab producers in optimizing the reheat furnace,” Russo adds. That includes maximizing the percentage of materials charged directly from the caster into the re-heat furnace, saving a portion of the cost of reheating. Maximizing hearth coverage significantly improves the amount of energy required per ton to obtain rolling temperature. “We also developed a software model to allow us to maintain a minimum resonance time in the reheat furnace,” he says.
Worries about the impact of power failures go hand-in-hand with energy cost concerns. In Canada, Algoma Steel is protecting itself against both rising costs and power outages while reducing emissions by utilizing by-product fuels from primary operations, such as coke oven and blast furnace gases. Transported through piping systems to boiler house operations, the gases are burned to produce high pressure steam. Steam turbines then power generators to produce 30 megawatts of electricity. “Internally generated electricity has provided Algoma with security and reliability, as well as cost savings,” says Michael Gassi, superintendent-utilities.
He cites the major North American power outage in August 2003, when the steam turbines fueled by by-product gases provided enough power to prevent major damage to the company's assets by enabling the steelmaking operation to empty its No. 5 vessel of molten liquid steel and stabilize other equipment.
PEAKS, VALLEYS AND GAMBLING
Many companies, including IPSCO and Sierra Aluminum, attack the uncertainties of energy costs through long-term contracts with electricity providers. They even out the peaks and valleys of natural gas prices by hedging on derivative contracts.
A more unusual approach to energy purchasing is in place in the Steel Dynamics plant in Columbia City. An electric cooperative serving rural electric membership corporations buys power directly for the plant. By looking at a computer screen, the melt shop supervisor can see the average price of energy consumed for the last five minutes and make decisions about whether to continue to purchase and consume based on current power costs. If prices reach and stay above a predetermined level, the melt shop manager determines whether to shut down, weighing cost considerations against the need for inventory. At Steel Dynamics, this is an option because the melt shop has greater capacity than the rolling mill.
With power prices fluctuating between $10 and $100 per megawatt by time of day and time of year, Dick Teets, vice president and general manager of Steel Dynamics' structural and rail division, calls it a “neat, flexible arrangement. We can manage our energy costs differently than our sister plants that have to buy through their local utility.” But without a contract, he is also more vulnerable to being cut off during an energy system failure. “I don't have an insurance policy so it is a bit of a gamble,” he admits.
A gamble of another type is underway in Crawfordsville, where Nucor has invested in a new casting technique known as Castrip, developed by Broken Hill Proprietary Corp. and Ishikawajima-Harima Heavy Industries Co., Ltd. in Australia. This technology produces lighter gauge steel sheets with 89% less energy than thick slab casters and 81% less than slim slab casters, at the same time substantially reducing emissions.
Castrip uses a twin-roll casting process first envisioned by Sir Henry Bessemer in 1857. Precision robotics, high speed computing and sensing controls have finally made Bessemer's dream feasible. The process itself is simple, with molten metal fed between two counter-rotating rolls. Dramatically less energy is required because Castrip does not require reheating and there is only one hot reduction stand. In comparison, slab casters require large quantities of energy to reheat slabs and then additional energy to roll them in a multi-stand hot strip mill.
Nucor Corporate Controller Jim Frias says the Castrip process is now commercially viable. The company is seeking a second Nucor location for a Castrip operation in the United States and is seeking a joint venture partner for a Castrip plant overseas. “This process makes sheet steel production energy efficient,” he says.
While the energy savings are substantial,they are not large enough to justify replacing a working caster with Castrip. “Castrip will be most successful as an addition to an existing steel mill that has excess steel melting capacity. Castrip is a very efficient outlet for that extra melting capacity,” Frias says.
With energy prices near record highs, the company hopes to find a ready market for Castrip licenses in the near future.