INDUSTRIAL COMPETITIVENESS AND ENERGY EFFICIENCY

Allan Fogwill, President and CEOWebinarJanuary 14, 2020

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Allan Fogwill

CANADIAN ENERGY RESEARCH INSTITUTE

OverviewFounded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors.

Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public.

CERI publications include:

• Market specific studies

• Geopolitical analyses

• Monthly commodity reports (crude oil, electricity and natural gas)

In addition, CERI hosts a series of study overview events and an annual Petrochemicals Conference.

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CORE FUNDERS

FUNDING SUPPORT

IVEY FOUNDATION

IN-KIND SUPPORTAlberta Energy Regulator | Bow Valley College

JWN Energy | Northern Alberta Institute of Technology Petroleum Services Association of Canada

S.M. BLAIR FAMILY FOUNDATION

AGENDA

• Introduction

• Study Scope & Methodology

• Sectoral Results

• Observations

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Introduction

• Canada’s industrial sector accounts for the largest share of energyuse in the country

• In 2015, Canada’s industrial sector consumed 3838 PJ of energy,which is 39% of the country’s total energy consumption

• According to Natural Resources Canada, energy efficiencyimprovements have reduced the industrial energy use growth by8% over the period of 1990 to 2013

• Further energy efficiency improvements can potentially lower thecost of manufacturing

• Energy use by the industrial sector is dominated by natural gas(43%) and electricity (20%)

• Lower cost of energy, primarily natural gas, may lead touncertainties in economic value of energy efficiency improvements

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Introduction

7Figure source: Natural Resources Canada

Scope and Objectives

• This study provides an economic assessment of industrial energy efficiency in 5 industry sectors in Canada

1. Pulp and paper

2. Iron and steel

3. Primary aluminum production

4. Chemical manufacturing

5. Bitumen extraction and upgrading

• These sectors have been selected based on their energy intensity, level of trade exposure, competitiveness compared to trading partners, and contributions to the gross domestic product (GDP) of each province

• All five sectors are considered as high energy intensive and trade exposed sectors

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• First 4 sectors represent 75% of industry

• 50% to 80% trade exposed• Energy < 20% of production cost

Analysis Framework

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Pulp and Paper Sector

10Data from CEEDC; Figure by CERI

Pulp and Paper Sector

11Data from CEEDC; Figure by CERI

• Observed sector average energy intensity in Canada is 2-2.5 times that of world best practice energy intensities

• Even within Canada, energy intensity varies from facility to facility and lower energy intensities have been observed

• It is possible to lower the energy intensity by using available technologies

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Chemical Pulping

Room for EI reductions

Energy Efficiency Options for the Pulp & Paper Industry

• Several technical options are assessed to lower energy intensity

• 18 to improve thermal energy consumption efficiency

• 5 to improve electricity consumption efficiency

• All options are proven and commercially available technologies

• For each option estimated the energy intensity reduction potential and the associated retrofit cost

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Energy Efficiency Supply Curve for Pulp and Paper Industry

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Efficiency Improvement options for Pulp and Paper Industry

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Rank Applicable sub-sector Energy Efficiency Improvement Option Energy Savings (GJ/t)CCE (No carbon pricing)

(CAD$/GJ)

CCE (With carbon pricing)

(CAD$/GJ)1 Papermaking Stationary siphons 0.89 0.02 -1.482 General Measures Steam traps maintenance 1.79 0.33 -1.093 Papermaking Turbulent bars 0.59 0.36 -1.144 Chemical Pulping Continuous digester modifications 0.97 0.73 -0.775 Chemical Pulping Batch digester modifications 3.2 1.05 -0.456 Bleaching Chlorine dioxide preheating 0.59 1.46 -0.047 Papermaking Sludge recovery and utilization 0.28 1.89 0.398 Papermaking Enclose paper machine hood 1.59 2.09 0.629 Chemical Recovery Lime kiln modifications 0.46 2.28 0.78

10 General Measures Condensate return 0.21 2.36 0.8611 Papermaking Air system optimization 0.2 3.93 2.4312 General Measures Real-time energy-management systems 0.4 4.62 3.1213 Mechanical Pulping Refiner improvements 1.1 5.72 5.7214 Papermaking High-efficiency double-disc refiners 0.06 6.22 6.22

15 Papermaking

Anaerobic wastewater treatment and methane

utilization0.2 9.10 7.52

16 Papermaking Shoe press 1.49 9.10 7.5317 General Measures Adjustable-speed drives 0.04 9.96 9.9618 General Measures Energy-efficient lighting 0.05 10.30 10.3019 Mechanical Pulping Heat Recovery in Thermomechanical pulp mill 2.66 11.29 9.4920 Chemical Recovery Black liquor concentration 0.76 17.52 16.0221 Papermaking Waste heat recovery 0.5 18.53 17.0322 Chemical Recovery Falling film black liquor evaporation 0.8 47.17 45.67

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Energy Efficiency Options for for Pulp and Paper Industry

• Energy intensity of chemical pulping can be improved by about 10.6GJ/Mt with commercially available technologies

• Carbon pricing makes energy efficiency improvements more economical

• Facility level analysis is required to assess the full viability of technical options

• Economic viability of energy intensity reductions also depends on the fuel mix

• More than 75% of the fuel used for chemical pulping consists of wood and spent pulp liquor

• These are sourced within the process and have a much lower cost than natural gas

• Main caveat of the analysis is that the cost of conserved energy estimation does not take into account loss revenue due to down times to make retrofits

Chemical Manufacturing Sector

17Data from CEEDC; Figure by CERI

Year

Year

Chemical Manufacturing Sector

18Data from CEEDC; Figure by CERI

Year

Year

Ammonia Production

• Ammonia is the a major feedstock for fertilizer manufacturing

• Major processes used for ammonia production in Canada are based on steam methane reforming

• Over the past few decades energy intensity of ammonia production have declined steadily in Canada and the rest of the world

• Canadian ammonia plants are comparable to the rest of the world in terms of energy intensity

• The study assesses 22 technologies to improve energy efficiency of ammonia production

• Each technology has varying level of electricity and natural gas demand reduction potential

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Average energy intensity of 93 ammonia plants

Energy intensity of 10 best in class ammonia plants in the world

Thermodynamiclimit of ammonia production

Evolution of best in class ammonia production energy intensity

Year

Energy Efficiency Supply Curve for Ammonia Production

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Technology Options to Lower Ammonia Production Energy Intensity

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Tech Index Energy-efficiency Technology/MeasureCCE w/out carbon tax (2018

CAD /GJ)

CCE with carbon tax (2018 CAD

/GJ)

1 Automatic control and optimization of ammonia synthesis reactor temperature 0.52 -0.84

2 CO2 removal system using N methyl diethanolamine (MDEA) solution 0.54 -0.87

3 Unpowered ammonia-recovery technology 0.58 -0.834 Heat recovery from re-former flue gas 1.39 -0.015 Three-waste fluidized-mix combustion furnace 1.90 0.496 Medium-low-low temperature conversion technology 2.71 1.307 Large-scale axial and radial ammonia synthesis tower 4.63 3.238 Recovering waste heat from reformer flue gas 5.76 4.48

9 Synthesis-gas molecular sieve dryer and direct synthesis converter feed 5.82 4.42

10 Combined-cycle technology 7.30 5.89

11 Low-energy CO2 removal technologies, e.g., NHD (Polyethylene Glycol Dimethyl Ether) 7.82 6.41

12 Methanolization-hydrocarbylation purification technology 8.95 7.5913 Evaporative condenser cooling technology 11.32 10.16

14Two-stage PSA (Pressure swing adsorption) CO2 removal technology in ammonia

synthesis plant13.36 11.95

15 Full autothermic non-constant pressure methanolizing-methanation process 14.99 13.58

16 All low-temperature conversion technologies 15.06 13.6517 Adiabatic pre-re-former 21.99 20.8218 Low-energy natural-gas re-forming technology 30.89 29.3919 High-efficiency rotor technology 30.94 29.77

20 JR type ammonia synthesis tower internals with multi-stage adiabatic heat exchange system 42.48 41.31

21 New catalyst for ammonia synthesis, e.g., ferrous-oxide-based 50.01 48.60

22 Low-temperature methanol absorption technology (Rectisol) 80.57 79.16

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Energy Efficiency Options for Ammonia Production

• Several technical options are available to lower the energy intensity

• Natural gas price has a higher impact on the economic viability of energy efficiency improvements

• Lower energy prices make the energy efficiency improvement options less attractive

• Introduction of carbon pricing marginally improves the economics of options to lower energy intensity

Primary Metal Manufacturing Sector

23Data from CEEDC; Figure by CERI

Year

Year

Primary Metal Manufacturing Sector

24Data from CEEDC; Figure by CERI

Year

Year

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Energy Efficiency Supply Curve for Aluminum Production

Technology Options to Lower Aluminum Production Energy Intensity

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Rank Energy efficiency improvement optionEnergy savings (GJ/t)

Capital cost (CAD$/t)

Typical lifetime (years)

Saved energy source

CCE (CAD$/GJ)

CCE with carbon tax (CAD$/GJ)

Options for anode production and ingot casting1 Sensor and control systems upgrade 1 1.4 10 Fuel 0.4 -1.12 Furnace insulation 0.2 0.8 10 Fuel 1.3 -0.23 Optimum combustion air flow 0.8 4.1 10 Fuel 1.6 0.14 Furnace pressure control 0.3 2.4 10 Fuel 2.6 1.15 Efficient operation of burners 0.3 2.7 10 Fuel 2.9 1.46 Waste heat recovery 1 16.3 10 Fuel 5.3 3.87 Optimized motor system operation 0.36 9.5 10 Electricity 8.5 8.5

Options for aluminum smelting

8 Side Worked Prebake (SWPB) to Point-feed Prebake (PFPB) 2.88 620 20 Electricity 64.9 64.9

9Optimized cell operation (existing PFPB) 0.72 474 10 Electricity 213 213

Energy Management Systems (EnMS)

• Energy management systems can be used to

• Identify energy efficiency improvement options

• Increase the productivity of existing manufacturing setups

• Canada and other OECD countries currently promote implementation of EnMS toincrease industrial energy efficiency and productivity

• EnMS include tools and processes used in industry to monitor, control andoptimize the energy performance of individual processes and of the entireorganization

• EnMS enable organizations to measure, plan, take decisions and actions tomanage energy consumption within their operation by converting energy data intoenergy performance information

• In Canada, companies that have implemented an energy management systemhave achieved an average energy performance improvement of 10% within thefirst two years of implementation

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Case studies of EnMS Implementations

• Study provide a summary of case studies of EnMS implementations• Improvements due to EnMS are facility dependent and can not be

generalized with high confidence

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Industry Efficiency gain (%)

Monetary saving (million

US$)

GHG Emissions reduction (MtCO2)

Aluminum / Steel

3 – 10 2.5 – 15 565,000

Oil & Gas 3 – 7.5 0.8 – 15 625,000

Ammonia / Chemical

2 – 6.1 0.7 – 5 125,000

Pulp & Paper

3 – 22 0.3 – 40 198,000

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Competitiveness Considerations

Sector

Energy Efficiency Improvement

Total Investment Requirement (million C$)

Energy Cost Saving

Relative Reduction in Production Cost

Reference for Cost Saving Comparison

Pulp and paper 20% 606 C$36/Mt 3%Selling price of pulpAmmonia production 50% 158 C$25/Mt 8%Selling price of ammoniaAluminum production 5% 620 C$23/Mt 1%Selling price of aluminum

Iron and steel (Integrated) 50% 2500 C$49/Mt 6%

Selling price of steel mill products

Bitumen extraction 80% 452 C$3.3/bbl 12%Reference case production cost

Observations

• Energy efficiency investments are cost effective without carbon pricing.

• Carbon pricing has a minimal impact on investment returns

• Facility level analysis is required to make highly confident assessments

• Economic value of energy efficiency improvements depends on thecurrent energy intensity of the sector and fuel mix

• EnMS can cut production cost by up to 10% without significantly changingthe physical manufacturing process

• Cost effectiveness is directly influenced by the retail price of energycommodities

• Cost effectiveness can be reduced or eliminated if installation affectsplant operations

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QUESTIONS?

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