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PACWEST CONFERENCE REVIEW: Delegates told to follow the “American Model” in its approach to lobbying for the industry

Energetic may be one word to describe the 2001 PacWest Conference, held May 16-19 at Whistler, BC. The high (and going higher) costs of power and fuels were discussed throughout the conference, from t…

Energetic may be one word to describe the 2001 PacWest Conference, held May 16-19 at Whistler, BC. The high (and going higher) costs of power and fuels were discussed throughout the conference, from the Conference Forum on the global economy to the Purchasing Energy Panel to the technical sessions. As conference chair Chuck Easton, Norske Skog said in welcoming delegates, “In the past, we were successful through the exploitation of resources. In the future, we will be successful through the exploitation of our ideas and technology.”

Following the tradition of recent years, a Conference Forum opened PacWest with the theme in 2001 being the Global economy. Ken Peterson, Powerex Corp, led off by discussing the Outlook for the western power market. Powerex is a wholly-owned (and moneymaking) subsidiary of BC Hydro.

Peterson said that BC has the lowest industrial hydro rates in Canada. He reminded delegates that in this high-price environment, people have forgotten about the first three years of deregulated power (1995-98). He noted that prices have risen dramatically on the West Coast of the US, from $30-40 per megawatt hour to hundreds of dollars, even thousands in parts of California.

What will happen this summer? Peterson said there is talk of blackouts in California. Once prices flow through to the customers, they will “respond” quickly, i.e., cutbacks. There will be some rolling blackouts in California, but not too severe. He does not expect to see more four-digit prices.

In 2002, he said, the continued high prices will affect the economy, more than currently thought. He also foresees a significant de-integration of the utility business with increasing specialization.

In his opening, Stan Liu, cited a report released by the Sierra Legal Defense Fund just as the conference was starting: Pulping the law: How pulp mills are ruining Canadian waters with impunity. The point is, he added, environmental groups as well as the government, are keeping a close eye on the industry.

Liu’s topic was greenhouse gases in the pulp and paper industry. He went over some of the history of international climate change and environmental agreements signed since 1992, leading up to the Kyoto Protocol in 1997. Under the latter, greenhouse gases are divided into six groups. The goal is an overall reduction in greenhouse gas emissions of 5.2% from 1990 levels, by 2008-2012. For Canada, the goal is a 6% reduction. The Protocol was signed by 84 countries but only ratified by 33.

It comes into effect when it is ratified by 55 countries with more than 55% of the emissions from countries that signed the Protocol. The US contributes about 20% of the world’s greenhouse gas emissions, but that rises to about 40% when only the signees are counted. Of course, the US has since announced it has dropped out of the Protocol. Therefore, it can still be ratified but, as Liu said, it won’t mean a lot without the US.

Speaking about Canada specifically, Liu said that the government is maintaining that the country will meet its objectives of reducing greenhouse gas emissions by 6% from 1990 levels by 2008. He then discussed some of the domestic initiatives such as the National Action Plan on Climate Change.

In terms of numbers, Liu said that Canada emitted 682 megatonnes (Mt) of CO2 equivalents in 1997. This is 1.8% of global greenhouse gas emissions. Canada ranks #2 in terms of emissions per capita, trailing only the US. In 2000, the country emitted 694 Mt and the forecast for 2012 is 764 Mt although the Kyoto target is 565 Mt.

The forest products industry actually comes off rather well. It released 12.5 Mt in 1990, but only 11 Mt in 1998. However, this excludes CO2 emissions from wood combustion which equaled about 66 Mt/y. The industry’s emissions are 12% below 1990 levels although production has risen 21%.

In the future, greenhouse gas emissions will have to be reported under the Canadian pollutants release program.

Don’t jump

Delegates heard some bad news from an industry analyst — Reid Carter, National Bank Financial. Focussing on market pulp, Carter said it was a good thing the session was being held on the ground floor otherwise what he had to say would have delegates jumping out the windows. “I can’t find a reason to be optimistic.”

Market pulp producers have been finding a losing battle over the last 10 months. Inventories have not been rebuilt and shipments are down compared with 2000. Prices since January have dropped from US$710 to US$565 per tonne for NBSK.

Demand for all pulp-using paper and paperboard has declining significantly over the last year, especially in North America. Papermakers are using more fillers, coatings and recovered fibre.

Internationally, Russia and Indonesia have supplied China with low-cost pulp while North American and Nordic suppliers “stood on the sidelines.” Also, weak European currencies have hurt North American producers. For example, the Swedish crown has lost 20% of its value since 2000, 46% since 1996.

Carter concluded by saying that consolidation offers the promise of improved production discipline and, therefore, increased price stability and perhaps increased prices. The containerboard sector has given the best example of stable pricing and production discipline. The pulp sector, which is still highly fragmented, will be watched closely.

The academic sector had its say next as Richard Kerekes, Pulp and Paper Centre, University of British Columbia, discussed Emerging issues in recruitment, training and education of technical personnel. “If we are in global competition, we need a globally competitive workforce.”

As has been well documented, the issue of age looms large. Upwards of 40% of the industry’s workforce will retire in the next 10 years. In the area of recruitment, the industry has always had some difficulty attracting candidates. The industry has also had to fight its poor public image.

What can be done? Early exposure to the industry which would mean an effort to show the contribution of paper to civilization, the highly sophisticated technology used now and the industry’s commitment to environmental improvement. For mills, hiring summer and co-op students and participating in job fairs are steps to consider.

In-mill training meant learning on the job. This is not sufficient anymore, Kerekes said. There are fewer experienced staff and, therefore, no time to teach. Expertise is missing in key areas.

Topic specific training is good but can leave critical gaps and, therefore, missed opportunities. “You don’t know what you don’t know,” Kerekes noted.

It’s time for an innovative approach: distance education, regional short courses, on-site courses and first-year university courses (industry-academic collaboration).

Kerekes gave UBC’s Advanced Papermaking Initiative as an example. With its strengthened pulp and paper programs, it now has the personnel and resources to undertake new training initiatives.

Jim Miller, vice-president, pulp and containerboard marketing, Norske Skog Canada, also looked at market pulp. Following Reid Carter was a tough act, Miller acknowledged. “It would have been easier to do this talk last year because we were very optimistic then.”

In the first quarter of 2001, shipments only reached 82% of capacity, a very low level. Why? Prices were dropping so users were reducing inventories “to the bone.” Carter said the first signs were evident in August 2000 when China stopped buying.

Why did pulp markets collapse? Among the reasons — an unsustainable pulp:paper ratio, excess hardwood capacity, a grade shift in China to cheaper pulp and an economic slowdown. There is too much pulp in the system now.

In printing and writing grades, there is a positive outlook for 2002. There is opportunity for significant growth for paper and paperboard demand, particularly in Asia over the next few years. By grade, the growth potential for coated and uncoated woodfrees and coated mechanical is best. Higher growth is expected in Asia but Miller warned of more volatile pricing there.

In conclusion, Miller said, that on the plus side, the marke
t is bottoming out, there is no sign of a widespread recession, long-term consumption will grow and the industry is reducing its supply of market pulp.

This is balanced by a slow recovery, tough low-cost competition, a poor demand:supply ratio, tight capital spending and the fact there is no quick fix for the volatility.

Speaking to his local audience, Miller explained that BC has the benefits of superior fibre, low-cost energy, easy access to Asia and (hoped for) improved government:industry relations. (The day before this session, the provincial government in BC was defeated in an election. The new Liberal government is seen as being more industry-friendly than the previous NDP government, to say the least.)

The prosecutor had fun

The final speaker of the Forum came from the legal field. Alan Blair, Lawson Lundell Lawson & McIntosh, spoke about Environmental activists’ activities, barriers to trade. He said he brought a “message of hope, not despair.” Having been on the other side of the law as a Crown prosecutor, he said he had prosecuted some pulp and paper companies and “enjoyed” it. However, for the last eight years, he’s been a lawyer who has defended the industry.

He advocated using the US model, that the industry be a high-level lobby. “The industry needs to organize and lobby for results-based legislation. We need to be more American in our approach.”

Blair tore a strip off the environmental activists. He said their agenda is one that leads to laws. “Environmental activists have turned the community against you. They have turned public pressure into regulatory power.” Their influence jeopardizes the industry’s access to global markets.

“We suffer regulatory poverty here.” But, the industry can seize the high ground. It has to challenge politicians to change their belief that this is a sunset industry.

He discussed some specific BC court cases on the environment, the regulatory and appeals body and how easy it was to make a mockery of the process.

“We have to be the environmental activists of the future. You have to do the audits and find out what’s wrong without fear of it being used against being you (as long as the industry is prepared to fix it).”

Blair brought up the example of totally chlorine free (TCF) pulp. It can cause more problems, cost more and do more environmental damage. What to do? The regulating authority must change. Blair said that the authority has lost control of science, that it is moving further away from science. “We must lobby the new government and prove we have the answers.”

He again called for a more American approach. “Environmental activists have changed public perception. Time after time their science has been proven bogus. I’m advocating organization.”

Powering up

It was a full house for the Purchasing Energy Panel held on the conference’s second day. The panellists were: Brian Moghadam, Powerex, Martin Merritt, Engage Energy Canada, Paul MacMillan, Encore Energy Solutions, Dave Axford, Nexen Chemicals, Les White, West Fraser Timber and Rick Hopp, Maxim Power. Paul Willis, Willis Energy Services was the opening speaker. Jack Joys, Millar Western, moderated the proceedings.

Willis opened by saying that purchasing energy used to be boring, now it’s exciting. Why? Take a look at the price fluctuations. In BC, over the last year, the price of natural gas has gone from $3/gigajoule (May 2000) to $70/gigajoule (December) to $6 (May 2001).

Deregulation of the power industry in the US took place in 1995. A three-year period of declining prices followed. Due to these declining prices, exploration activity stopped. More purchases were made on the spot market. There was a series of mild winters. This all helped disguise the fact that supply and demand were getting out of balance.

The increase came because there was a dramatic increase in oil prices, a rise in electrical use and a cold winter. Supply could not keep up with demand.

Willis explained that a new plant can produce electrical power at a cost of $0.055/kWh. In the period of surplus power, electricity was being sold for $0.03/kWh. Obviously, there was no incentive to build production plants at this price. In 2000, the wholesale price rose to $0.143/kWh. This demonstrated a renewed interest in projects.

By 2006, there should be a surplus of power with production costs of $0.07/kWh. The price for natural gas and electricity should continue to decline from 2002 to 2008 to $5.10/gigajoule for natural gas and $0.065/kWh for electricity by 2008.

Joys had a series of prepared questions to ask the panel. How will the public attitude towards the environment be affected when they realize it could mean substantially higher power rates? Willis feels that public attitude will be an acceptance of substantially higher rates than what was historically the case. Why? At the residential level, energy costs are not that significant.

On the subject of deregulation, Moghadam believes it can work, but the rules must be clear and not subject to frequent change. An environment must be created where people want to invest. Government should be there to “steer the ship” occasionally, but cannot get involved in a heavy-handed way.

Axford agreed that deregulation is the way to go. The length of time it took to deregulate was a disincentive for generators to put in new capacity.

White said that perhaps deregulation should be renamed “access to markets”. He said that he hasn’t seen any of the “good stuff” yet, that deregulation promises. Prices haven’t gone down as promised but have risen.

What can electricity-intensive producers do to maintain their competitiveness? Axford said that there is still too much insulation of the consumer from prices. Utilities (in California) are paying high prices and that’s why they’re “going broke”. First, he advised, decide what is the risk-tolerance. Do you need electricity or do you go for a low-cost structure? Can you shift loads? Can you afford to reduce production? For the pulp and paper industry, Axford added, this may not be a bad idea.

G’day mates

Conference organizers scored a coup when Russ Horner, president, Norske Skog Canada agreed to be the feature speaker at the conference luncheon. In 1992 and 1993, Horner served as chairman of the Technical Section, CPPA (now PAPTAC) while he worked at was then Fletcher Challenge Canada (now Norske Skog). He then went “down under” for a few years before returning to Canada in 2000.

Horner noted that it was 25 years ago, in 1976 in Jasper, AB, that he gave his first paper at PacWest. In an excellent presentation, Horner took delegates on a “personal” journey, using the conference theme of globalization as a background.

“We are caught in this current of globalization. We survived but not by defending the status quo.”

Speaking about social and economic trends, Horner said there seems to be a growing divide between the two. Added to the mix is the global environment. Horner referred to it as an “innocent victim” in what’s going on. Government and special interest groups do not have the answers. “Their views are too narrow.”

The answers, therefore, must come from “us”, personally and professionally. “Most of what we do, the industries we work in, the way we consume resources, the way we impact the environment, are likely not sustainable.”

Speaking about the “global stakeholder”, Horner said the concept is based on looking at it of how “what we do in BC affects someone far distant.” Having been away for five years, Horner said when he came back, everything seemed different. “My perspective had changed because of my broad experience. Now, I have an increased hope that we can create a great future in BC.”

It’s no secret that BC had and has a negative image around the world that could have removed its “global social license” to operate. There have been conflicts in the forest that hurt the province’s reputation. “No matter who’s right, we realized we had to solve the issue.”

He noted that in Australia and Europe, the “greens” sit down with the mills. Thus, the industry in Canada must work on new solutions for old issues. And it has, he adde
d, citing the Coast Forest Conservation Initiative.

However, Horner added that the agreement does not come without a cost. The “social impacts” can be severe; good jobs lost, reduced medical services, divorce, alcoholism. “We must meet global social requirements. Every stakeholder must step up to meet this issue and put up the funds to get through the transition.” The “greens” must be a part of the solution, Horner added.

Horner concluded by saying there are three main factors working against the BC forest products industry.

Government (which may have been solved);

Environmental reputation: “We are really looked upon badly by the rest of the world.”

Labor relations: “We earned the labor relations we have. We (Norske Skog) are committed to changing that formula. We don’t treat our people properly. I learned that by going away.”

Fixing these three faults will provide a “great future”, Horner said. “The acquisition of Pacifica was a statement of faith in BC.”

Research Saturday

Besides the Forum and panel sessions, technical sessions were scheduled on topics such as energy, the environment, kraft pulping and bleaching. A CD of the presentations is available from PAPTAC.

The conference also tried something new on the Saturday morning. Rather than a technical session, conference chair Easton organized a Research Community Open House. The participants included Paprican, the UBC Pulp and Paper Centre, BC Research BC Hydro, Powertech Labs and BCIT.

Easton said the Forum was organized because the conference regular session was always “competing with the weather and social events.” “We wanted to try something with a different spin but low-effort (on behalf of the presenters).” The work was already done and it provided a less structured way to present the information.

At Saturday’s closing dinner, the awards for best papers were presented. Gerry Pageau, Howe Sound Pulp and Paper, earned the conference’s highest honor, the H.R. MacMillan “Eagle” Trophy for best paper. His paper was titled New filtrate addition system results in improved digester performance.

The first runner-up was George Wohlgemuth, Weyerhauser Co., Grande Prairie, AB, for his paper: Reduction of manganese in brownstock — Laboratory study and mill trial results.

The second runner-up award went to Paul Bicho, Paprican, for his paper: The effects of decadent western hemlock on pulping and pulp properties.

The best novice paper was presented by Farhad Ein-Mozaffari, UBC, for his paper: Performance and design of agitated pulp stock chests.

Marianna Gavriliu, National Silicates, presented the best supplier paper: Introduction of soluble MgSO4 in peroxide — reinforced oxidative extraction at two North American kraft mills (softwood and hardwood).

Jean Bouchard, Paprican, earned the judges’ special award for his paper: Improved deresination during oxygen delignification.