Energy efficiency of increasing importance
September 1, 2007
by Morton I. Sosland Editor-in-Chief
Even as energy prices create very real cost pressures for grain companies around the world, responsible managements must also be aware that global developments threaten an even more worrying situation within the foreseeable future. Most chilling in this regard was the warning recently issued by the International Energy Agency (IEA), which serves as an adviser on global energy trends to 26 member countries. “Oil looks extremely tight in five years’ time,” the IEA declared, while citing further “prospects of even tighter natural gas markets at the turn of the decade.” The IEA based these dire forecasts on data showing oil and gas production declining faster than had been expected in mature producing regions, while consumption growth has accelerated, primarily as the result of strong economic expansion in developing countries. The result is increasing reliance on oil supplies from the Organization of Petroleum Exporting Countries (OPEC), just as OPEC output is rising at only 1% per year, which is less than half of annual global demand gains.
In its broadest terms, this prospect for mounting tightness in oil and natural gas exerts a dual impact on the worldwide grain industry. The impact that has received the greatest attention is reflected in expansion of ethanol output using grain as feedstock. The rising demand for grain, mainly maize (corn), to make ethanol is increasingly being characterized as a revolutionary development of the sort rarely experienced in a mature industry.
But the second aspect of the tight global energy situation — finding a way to bring soaring costs under control — merits equal consideration by every sector of the global grain industry. This is the case even though the worldwide grain industry might well rank as among the lowest energy-intensive users in all of industry. When it comes to units of energy used per “output” of grain handling and storage complexes or even of modern flour mills and grain processing plants, requirements are low compared to energy-intensive sectors like steel, chemicals and aluminum. Most ironically is the likelihood that ethanol manufacture is the most energy-intensive operation within the entire grain processing field.
The global grain industry, like other businesses, has already given much attention to ways of achieving fuel savings in transportation. Energy use in over-the-road vehicles, as well as in other transportation modes, is quite easily measured and it is here that numerous steps have been taken to reduce costs. Within the aggregate of global energy use, transportation accounts for slightly more than 15%; when it comes to petroleum, it very nearly accounts for half of use. Fuel efficiencies in transportation have been identified and implemented by most companies in the grain industry , except in those countries that have not removed subsidies that discourage maximum efforts to lower fuel consumption.
Recent studies by McKinsey & Co. have pointed the way to achieving savings through energy productivity in industrial processing. McKinsey has cited two major thrusts that have applicability in grain processing. These are the recovery of heat generated in running production machinery for use in other processes and optimization of motor-driven systems, which are the principal processing units in a flour mill. Employing best-practice energy-efficient technologies in the construction and equipping of newly-built factories has been identified as the surest way to capture energy saving benefits.
Putting energy efficiency into a plant being newly constructed is much less expensive than modifying an existing plant. That is so even with oil prices at present high levels. If the forecasts of the IEA are realized about growing tightness and rising prices, then it’s possible that even low energy-intensive industries like grain and grain processing may find it desirable to consider building new plants to achieve the competitive advantage promised by energy-efficient processing.