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PACWEST CONFERENCE: The Energy Challenge — from threat to opportunity


July 1, 2006
By Pulp & Paper Canada

As the conference chair, Al Ward (Alberta Pacific Forest Industries) initiated the proceedings at the Pulp and Paper Technical Association of Canada’s PacWest Conference Forum by reminding the audienc…

As the conference chair, Al Ward (Alberta Pacific Forest Industries) initiated the proceedings at the Pulp and Paper Technical Association of Canada’s PacWest Conference Forum by reminding the audience that the reason they were there was to provide value back to the mill through absorbing the information presented by the speakers. Pierre LaMarche (Howe Sound P&P), program chair, pointed out that the conference was famous for its technical content and the information that was shared during the formal presentations and casual conversations. Joe Constantino (Millar Western) affirmed that the theme of the conference was topical and said that through understanding the threat, the people in the industry could find out about the opportunity.

First up was Paul Lansbergen, (association secretary, director, taxation and business issues, FPAC), who presented “Securing a more sustainable and prosperous future”. It was his opinion, he asserted, that the higher energy prices were hurting competitiveness; the world oil prices, the world’s highest natural gas prices in North America and Canadian electricity prices were placing the continent at a competitive disadvantage. This contributed to a double whammy on competitiveness with the higher prices driving currency appreciation.

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While certain areas of Canada were planning on phasing out the use of coal by 2009, they were not really prepared with anything else. “Quebec,” he said, “was rejecting natural gas but, with its access to hydropower, did not seem too concerned about biomass or cogeneration.” Unlike its neighbour, Ontario was inclined towards the use of more natural gas. “Renewables are generally supported but to varying degrees and federal renewable energy incentives need to be confirmed and implemented,” he stated. “The industry energy vision should be to become entirely energy self-sufficient and net exporters of energy.”

The audience was able to compare the Canadian situation to other areas through the presentation given by Tom Doak-Dunelly (former managing director, Forest & Paper Innovation Centre, EMEA, IBM Business Consulting Services). His “Overview and assessment of Nordic forest & Paper Company approaches to meet the energy challenge – implications for Canadian producers and suppliers” elaborated on the differences in Nordic cultural characteristics and the evolution of the Nordic industry as compared to those in our industry. “Russia,” he added, “was the sleeping giant. When it wakes up, there will be tremendous potential there.”

Eric Connor (senior vice president of ThermoChem Recovery International) expounded on “Spent liquor and biomass gasification; the foundation of the forest biorefinery.” He maintained that the integrated forest biorefinery was a strategic paradigm shift but, he said, “if we recognize that we are the world’s best processors of biomass, we are uniquely positioned to capitalize on the nation’s focus on renewable energy while creating a strategic and sustainable business.” Connor gave a brief technology overview of proven applications, as well as examples of projects that were incorporating similar methods. The mill of the future, he predicted, would be an integrated forest products biorefinery, with not only pulp and paper as a product but also biodiesel, ethanol, green power, fuel feedstock and chemicals. He advised the audience to reach for the opportunity, listing the advantages which included revitalizing the key North American renewable resource industry, providing more products for a broader range of customers and creating more revenue that was stable and flexible and maintaining a strong balance sheet with access to capital.

The director of Energy of Catalyst Paper, Dennis Fitzgerald, explained how Catalyst Paper has had success in recent years in reducing the costs of fossil fuels. “Looking ahead,” he said, “the focus is shifting to an even bigger opportunity in electricity.” Energy accounted for about 15% of the company’s manufacturing costs and this was divided into diverse sources of heat: biomass (74%), fossil fuels (15%), cogen steam – natural gas-based (9%) and alternative fuels, such as tire-derived fuel, coal and municipal landfill gas (2%). Biomass residuals are a key fuel to BC’s paper industry and Fitzgerald affirmed that increasing biomass usage was one of the energy management philosophies, along with substituting alternative fuels for fossil fuels, arbitrage between oil and gas and the use of cogen where most efficient. One of the charts presented showed an estimate of 36% reduction of fossil fuel for 2006 translating into a $15 million per year sustainable saving.

Presenting at the end of the forum was Graeme Rodden (editorial director, magazines, RISI) who gave a statistical overview of RISI forecasts in “Facing Global Challenges.” “Don’t shoot the messenger,” he warned the audience, before listing selected mill capacity expansions in Asia compared with announced pulp and paper mill/machine shutdowns in North America.

Al Ward returned to the podium to point out that everyone was affected by similar challenges. “The whole world is in the same bucket,” he said. “The problem is that the pulp and paper industry is one of the few that has not been able to pass down the costs.” This, however, was balanced by the fact that Canadian workers were still the smartest and the most productive workers in the world. He ended with the recommendation to “Learn how to control your own destiny.”

Conference Feature Luncheon

The industry is facing some critical issues over the next few years and Frank Dottori, former president and CEO of Tembec, hammered this statement home during his featured lunch presentation at the PacWest Conference in May. He was blunt with his assessment as to whether the industry can survive. “Can we do it?” he said rhetorically. His answer: “Some will and some won’t make it.”

The thrust of his talk, however, was not negative. Both his speech and his presence indicated support for the industry and there was a message of hope mixed in with the realistic critique. Much of the presentation attested to the importance of pulp and paper production in Canada. This was portrayed through the industry’s contribution ($40 billion annually) to Canada’s balance of trade and the billions of tax dollars to the various levels of government. On an individual level, it provided the highest-paying average salaries in comparable businesses.

“The industry,” he said, “is one of Canada’s creators of wealth.”

Approximately 350 communities are dependent on local mills. The media presents a skewed version of the environmental issues concerning the mills and the major improvements in performance over the last decade were glossed over. “Canada leads the world in forest third party certification and is one of the most environmentally friendly industries,” Dottori stated. It uses renewable and sustainable resources while producing little or no greenhouse gases.

But now we come to the realities of the financial performance. “Investors,” said Dottori, “are shunning the forest products industry.” The regional return on capital employed during the period 1999-2004, showed Canada as having a 4.4% return. Although this was not as bad as the number coming out of Japan (2.1%), it was also not as positive as Latin America (7.3%) and Europe (8.1%). One of the main problems, he pointed out, was the cost structure of fibre and energy. The cost of Canadian fibre was now the second highest in the world, after Japan’s, and there were shortages developing across Canada. As for energy, which made up approximately 15% of the manufacturing costs, the high price of that, along with the record prices of oil and gas, were creating a serious cost push and affecting the entire industry.

One of the serious issues is the cash cost difference for delivery of the product as compared to across Canada, and with the US, Brazil, Chile and Europe.

Despite the increased demand for pulp in the global context, the paradox was explained by Dottori as being the result of
too much production, with the increase being greater than the demand.

There has been excellent improvement in environmental care which must continue, affirmed Dottori. He advised the industry to arrange for more interaction and long term planning with communities and government, including resolving issues with the First Nations in which the industry should take an active role. As well, companies need to take a proactive approach with communities and local media. While admitting that major restructuring was required, Dottori pointed out that this required investments to improve productivity and reduce costs. Innovative technologies were needed so that there would be less capital expenditure per dollar of sales.

“We need to do it right,” he emphasized.

PACWEST CONFERENCE HONOURS PARTICIPANTS

Well-known for its technical content, the conference did not disappoint. There were many outstanding technical presentations made, some of which were chosen as winners in their categories.

H.R. MacMillan Trophy for BEST PAPER was awarded for Using H2O2 for Brownstock Treatment at the Tembec Skookumchuck Mill

Authors: Gavin Baxter, Mark Cameron, Tembec, Skookumchuck Mill; Dan Davies, Degussa Canada, Surrey, BC

The Alberta Research Council also presented the George Sedgwick Memorial Award as the Best Mill Paper for this paper.

Recognition as the FIRST RUNNER UP was awarded for Modelling Kappa Number and Pulp Viscosity in Industrial Oxygen Delignification Systems

Authors: Chad Bennington, Jacky Susilo, Department of Chemical and Biological Engineering, UBC, Pulp and Paper Centre

Recognition for the BEST NOVICE PAPER was awarded for Kraft Mill Energy Reduction Measures Implemented at Catalyst Paper, Elk Falls Division

Authors: Kerry Penner, Allnorth Consultants; Mike Staiger, Larry Heel, Catalyst Paper, Elk Falls Division

Recognition for the BEST SUPPLIER PAPER was awarded for Predicting Kraft Mill Total Reduced Sulphur Emissions Using Vapour – Liquid Equilibrium Theory Part 2: Mill Testing Results

Authors: Allan Jensen, A.H. Lundberg Systems; Gerry Pageau, Howe Sound P&P; Sheldon Duff, Dusko Posarac, Richard Branion, Dept. Chemical & Biological Engineering, UBC


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