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Capital Expenditures: The Party’s Over

s capital spending on energy and efficiency projects tapers off with the end of the Pulp and Paper Green Transformation Program (PPGTP) in March, dissolving pulp becomes the hot area for investment in 2012.

Three big ticket projects in 2012 are associated with dissolving pulp mills. The most substantial investment is the $200 million being spent to convert the Prince Albert pulp mill to a dissolving pulp facility. Fortress Specialty Cellulose, fresh from its dissolving pulp conversion, is completing an associated co-gen project this year. And Tembec has earmarked $343 million for its specialty dissolving pulp business over the next five years.

The other major investment taking place at many Canadian mills is in power generation projects. Most were started last year within the framework of the Green Transformation Program, which favored energy conservation and environmental projects.

The hangover effect

It was a scramble in 2010 and 2011 to get upgrades and new installations planned, approved, ordered, delivered, and installed within the time-frame dictated by the terms of the PPGTP. Now that the flurry of activity is over, there’s a lull while everyone catches their breath and gathers their resources.

Blair Ryberg of Tolko Manitoba Kraft Papers notes, “The 2012 [capital expenditures] list is very light since we installed a great deal of capital in 2011, which resulted in the mill being down for weeks to get the capital installed. “

The message is similar at many other mills across the country.

Tim Lanteigne of Daishowa-Marubeni Peace River Pulp, says his mill’s cap-ex for the next couple of years is largely geared toward wrapping up PPGTP projects. “We will probably limit internal capital spending to $8-$10 million for maintenance, upkeep, and obsolescence type of projects.”

There were very tight timelines on the PPGTP projects, so DMI ran into cost overages related to the deadlines, Lanteigne explains. In the West, mills were competing with one another for labor and technical resources, and competing with a strong oil and gas industry at the same time.

“We had to stretch our internal resources, and external resources were hard to get,” he recalls.

DMI’s recovery boiler upgrade was completed last fall, and the new condensing turbine generator was in the final stages of commissioning in December.

At the Weyerhaeuser Grande Prairie pulp mill, the only capital project at in 2012 will be completion of the new evaporator plant at the facility. This is a $70-million project begun in 2011.

“We now expect completion in the summer of 2012 because of some weather-related delays in equipment deliveries,” explains Wayne Roznowsky, manager, public affairs, for Weyerhaeuser in Canada. The final two vessels for the evaporator plant were due to arrive in Grande Prairie in December.

“For our part we expect to see less capital spending in 2012 compared to 2011, if you consider the evaporator plant a 2011 project. There will be no “new” projects in 2012 at Grande Prairie.”

Roznowsky says the PPGTP did free up capital for other projects. “The evaporator plant is an example. It followed the installation of a new turbine generator at Grande Prairie. Just over $32 million from the Green Transformation Program went into the new turbine generator, allowing capital that would have otherwise been used for the turbine generator to go into the evaporator plant.”

Mills on a power trip

Nanaimo Forest Products Ltd. recently announced a new 25-MW turbo-generation unit for its Harmac Pacific pulp mill located just south of Nanaimo, B.C. The project will allow Harmac Pacific to generate and sell clean power to BC Hydro.

The turbo-generation unit will produce electricity from wood biomass, and use recaptured steam energy from the pulping process. Upgrades will also be made to the pulp mill’s boiler and hog fuel handling system.

Harmac president Levi Sampson said the construction of the plant will begin “immediately” and is expected to last 18 months.

“We’ve always wanted to do this but there were so many other things to focus on during our first years of operation,” Sampson told the

Nanaimo Daily News.

“It’s a big financial commitment and the decision to move forward with the project was not made lightly, but we see it as another revenue stream for the mill. There are so many ups and downs in the pulp industry that the stable and secure revenue stream which this will provide will help us out in hard times.”

Funding for the series of upgrades was made possible by PPGTP ($27 million) and BC Hydro’s Power Smart Partners Industrial Program ($1 million for a vacuum pump system upgrade).

Cariboo Pulp & Paper is following the power generation path, using its PPGTP funding to install a turbogenerator and upgrade its hog boiler ($47 million). This will allow the company to export power to the B.C. grid.

The second project Cariboo has underway for 2012 is a new R8 plant to upgrade ClO₂ production. This is partially-funding by the PPGTP, and is expected to cost $17 million.

Bowater Mersey Paper Co. plans to install equipment to improve heat recovery from steam generated at its Brooklyn Power co-generation plant, according to the

Chronicle Herald newspaper. Engineering for the biomass project, which would generate 3.3 MW of electricity, is underway, Robin Anthony told the paper.

The investment is part of a $50-million deal between Bowater Mersey’s owner, Resolute Forest Products, and the province of Nova Scotia to keep the mill open and improve its efficiency.

Pierre Choquette, a spokesman for Resolute, said the company plans to spend about $18 million on long-fibre refining at the Bowater Mersey site and roughly $7 million on a new turbine for the Brooklyn power facility.

Fibrek reported in late 2011 that its co-generation project at the Saint-Félicien mill is on budget and on schedule for its target start-up date of December 1, 2012. To date, the company has received grants totalling $9.0 million and incurred $10.1 million in capital expenditures.

This project will increase green energy production capacity at the Saint-Félicien mill by nearly 30%, from 33 MW to 42.5 MW. Since the mill was already self-sufficient in terms of energy, the additional 9.5 MW of electricity will be sold entirely to Hydro-Québec Distribution beginning in December 2012.

Don’t forget MRO

After completing its PPGTP-related upgrades, Tolko’s 2012 projects tend to be the ongoing-maintenance type of investments. To remain compliant with regulations, $1.5 million will be spent on a landfill expansion cell and an upgrade to petroleum storage tanks and associated unloading areas ($100,000).

The landfill expansion cell is expected to be completed by the end of Q2.

Tolko is taking advantage of the closure of the Pine Falls mill to purchase of a used chip truck dumper from that operation. Cost of acquisition and shipping from Pine Falls to The Pas is expected to be $385,000. The new equipment will improve the cycle time of chip unloading and thus improve fibre costs. The first phase, to take place in 2012, is to get the used equipment to the mill site. Installation will follow in 2013.

A paper
break mitigation project, worth $485,000, will begin in the first quarter of 2012, and is expected to wrap up in the third quarter. The objective is to improve paper machine threading at the reel after paper breaks.

Tolko’s Kevin Scully echoes Blair Rydberg’s comments on the PPGTP hangover effect. “Anticipated capital spending for 2012 is much less than 2011 – this is mainly due to the conclusion of the PPGTP program, and less capital funding available company-wide in 2012.”

However, Scully adds that the PPGTP projects will free up capital for other projects within this business unit.

At Alberta Newsprint Co., there is a notable lack of PPGTP funding, since the company does not produce the black liquor needed to qualify for PPGTP credits. Gary Smith reports that the company continues to spend approximately $4.5 million yearly on capital projects to keep the mill competitive.

Biogas cuts operating costs

There are also several bio-gas projects in progress or beginning this year. Tembec Matane, AV Cell and Millar Western are investing in bio-gas systems for internal energy use, while Alberta Pacific is pursuing a totally new product line with biomethanol for sale to external clients.

Millar Western Forest Products is waiting for approval for its bioenergy project, announced in June 2011 in partnership with UEM Inc. The budget for the project is reported at $35 million. Millar Western confirmed in January 2012 that it was still awaiting regulatory approvals.

The project will involve the installation of anaerobic hybrid digesters at its Whitecourt, Alberta, pulp mill, to convert organic material in mill effluent to a biogas that will generate power and heat, reducing energy purchases and improving the mill’s environmental performance. Millar Western is currently in the process of seeking regulatory approval. If it is given approval to proceed by both the regulatory agencies and Millar Western’s board of directors, the project is expected to take 18 to 24 months to complete.

The project will use wood waste from pulp plant wastewater to produce green electricity, according to an Aug. 2011 story in the

Whitecourt Star.

At Millar Western’s announcement of the project, Ron Reis, Millar Western’s pulp senior vice-president, thanked the governments for supporting this new venture. “While we all agree that the pursuit of greener technology is the right thing to do, the reality is that developing projects of this nature is often challenging, especially for smaller and medium-sized companies like Millar Western.

“Projects can take years of research and development, and can often encounter many dead ends and detours along the way. And, because of the untested nature of the new technologies we are trying to adopt and commercialize, these projects are usually difficult to finance by conventional means.”

Funding for the project comes from the federal government through the province from Alberta’s share of the Canada Eco-Trust for Clean Air and Climate Change. The eco-Trust has distributed $1.5 billion among all the provinces and territories.

AV Cell in Atholville, N.B., is turning to biogas as its source of green energy. An aerobic reactor that was being installed late in 2011 will turn mill effluent into a methane-rich biogas.

The $18-million, closed-loop system will be a renewable energy source, able to account for 25 to 30% of the mill’s energy, according to AV Group’s corporate energy manager, Rajeev Goel. He calculates that the new reactor will displace 2.2 million litres of oil and 7,000 green tonnes of biomass each year.

Tembec announced in January 2011 a biomethane project and boiler conversion worth $25.7 million for its high-yield pulp mill located in Matane, Que. Funding will come mainly from the federal government’s PPGTP ($18.9 million) and the province of Quebec ($6.3 million).

“This investment will result in a significant reduction in costs for Matane and will allow the mill to be competitive in global markets for years to come,” said Yvon Pelletier, executive vice-president and president, Specialty Cellulose and Chemical Group.

The project has two main components. The first is a new anaerobic treatment facility which treats effluent and collects the methane gas produced in the treatment process, allowing it to be used as a bio-fuel for drying the pulp produced at the site. With an estimated cost of $1.8 million, the second component involves the installation of an electric boiler that will replace the current heavy oil fuelled boiler.

They will also result in a significant improvement in the mill’s cost structure, with EBITDA projected to increase by $6 million on an annual basis, beginning when the project is completed in mid-2012.

Al-Pac diversifies with biomethanol

A first-of-its-kind biomethanol project at Alberta-Pacific Forest Industries Inc. will benefit from the support of the federal Investments in Forest Industry Transformation (IFIT) program. Al-Pac is receiving $4.5 million from IFIT to diversify its product offerings by extracting and purifying biomethanol from its pulping process.

With funding announced in October 2011, Al-Pac said it would proceed with installation of equiapment to separate and purify biomethanol, using a new technology developed in partnership with A.H. Lundberg. Al-Pac already produces unpurified biomethane which is burned as a fuel in a lime kiln. “The integration of the new technology will see this biomethanol purified and used in the production of a pulp whitening agent. The remainder of the biomethanol produced will be commercially sold.”

The methanol purification requires the construction of a building on the mill site to house equipment. Tie-ins to existing equipment were put in place during the company maintenance shutdown in 2011, and Al-Pac expects to begin purifying and selling biomethanol in the first quarter of 2012.