Fuel management partnerships can save time and money

Outsourcing is creating a stir in today's industrial manufacturing sector. Recently, there has been a trend to outsource onsite energy management functions, among them fuel management.

09/01/1999


Outsourcing is creating a stir in today's industrial manufacturing sector. Recently, there has been a trend to outsource onsite energy management functions, among them fuel management.

Plant engineers, facilities managers, and financial officers are beginning to re-evaluate their current fuel man- agement systems in an effort to reduce overhead costs and save money. Because a fuel management system provides the power to operate an entire plant, a more efficient system can yield valuable energy savings.

For example, in most manufacturing facilities, the cost of energy is 10-15% of production costs. In the chemical and pulp and paper industries, the number could be more than 20%. Enhanced handling of energy resources, particularly fuels, can generate substantial advantages.

Typical fuel management systems

Many plants are not organized to obtain the most efficiency from their fuel resources. Responsibility typically is divided among three positions or areas: plant engineer, purchasing manager, and maintenance staff.

Fuel management often receives less attention than it should. This situation is unfortunate because fuel prices and market trends need to be monitored constantly to ensure the plant obtains the best fuel prices.

The fuel supply chain is typically structured in the following way: Fuel -- whether it is oil, gas, or coal -- is purchased by a facility. It is transported to the plant, off-loaded, and either inventoried (oil and coal) or balanced (gas). It is then combusted to meet the energy needs of the operation.

If coal is the fuel of choice, the final step in the chain is the cleanup of the waste stream. Responsibility for these activities is broken down in this way: The purchasing agent obtains bids, ranks them, and recommends a vendor to the plant engineer or facilities manager. A decision to buy is made. Then, the maintenance manager takes over handling the fuel. Such an approach to the process can be cumbersome, especially when facilities have multiple vendors providing fuel-related services.

Enhancing efficiency with a fuel partner

Outsourcing to a fuel management partner helps enhance efficiencies in a number of ways. A specialist partner can identify ways to reduce costs and alleviate the burdens of onsite fuel management. Savings in time, money, and resources are achieved by integrating the entire system. A partner does not look at one part of the fuel chain at a time. It looks at the whole picture and pinpoints ways to create synergies in the total process. A viable partner also brings specific, and valuable, assets to the table.

An example of these assets might be strategic alliances in such areas as coal mining and rail transportation that can smooth out supply disruptions. In addition, alliances coupled with negotiating experience and buying power give partners advantages in procuring the best fuel prices. All aspects of the fuel supply process are considered core competencies.

Fuel management partners can manage many aspects of the fuel process, including the risks associated with interruptible fuel supplies. For example, some plants use natural gas as a primary fuel and burn higher-priced fuels such as No. 2 oil or propane during gas interruptions. Others burn coal with a mixture of 10--20% natural gas to reduce SO(sub 2) and NO(sub x) emissions.

A fuel management partner can provide pricing advantages by leveraging low-cost opportunity fuel supplies when they are available. The company then can switch fuels based on pricing rather than on interruptions alone. The partner can also offer additional flexibility by avoiding costly minimum take contracts most individual customers must accept to ensure backup fuel supplies during critical periods.

Finally, the fuel management partner can manage such time-consuming service functions as accounting and reporting payables, invoicing, and transportation. It can also handle reporting as required to regulatory bodies such as state environmental agencies.

Partner capabilities

As with every outsourced service, the activities handled by a fuel management partner can , with proper training and planning, be done inhouse as well. However, if a decision is made to turn these functions over to an outside agency, the best possible service should be obtained. A potential partner should offer indepth capabilities. The accompanying section, "Consider these points when selecting an outsourcing partner," outlines some specific areas to examine before securing fuel management assistance.

The general concept of outsourcing is gaining interest in many industries. No longer is it limited to a few processes. Many creative ways to delegate activities to other providers are being explored. A growing number of organizations are finding outsourcing opportunities in many areas, including energy and fuel management. The good news is that outsourcing provides a wide range of alternatives for companies looking for ways to move and stay ahead of the competition.

-- Edited by Jeanine Katzel, Senior Editor, 630-320-7142, j.katzel@cahners.com

Key concepts

Fuel management responsibilities at most facilities are often fragmented, leading to inefficient handling of resources.

Outsourcing to a fuel management partner can help identify ways to reduce costs, limit supply disruptions, and negotiate strategic alliances.

Consider these points when selecting an outsourcing partner

Seek a company that offers indepth capabilities and the best possible range of services. The type of fuel used by the facility influences the decision.

Plants using coal should consider:

- Quality control. Pulverizing and blending coal are critical processes with significant payback potential in reducing operating costs, meeting emissions control requirements, and providing boiler system flexibility. However, these processes are part of a dynamic system. An outsourcing partner can implement a fuel-quality monitoring system, tailoring it to the specific plant to optimize flow and quality control variables. Contract administration services should also be offered to help the plant assess the economic impact of coal switching.

- Combustion optimization/fuel switching. Combustion optimization and assessment are both activities that will affect boiler operation. A fuel management partner should be able to model and calculate the economic impact of coal switching as well as administer bonus and penalty valuations based on fuel quality.

- Ash and byproduct management. Among the primary offerings of the partner should be identifying disposal options, developing beneficial use options, disposal contracting, haulback, and contract administration. Meticulous recordkeeping is key to demonstrating compliance and qualifying for available air quality incentives.

- Transportation to site. Superior bulk handling responsibilities require risk assessment (equipment and operations), logistics support, and transportation interface management. In addition, a partner should be able to offer singular transportation modes and options, multiple routing, contract development and administration, rail car lease management, performance metric development, and freight weight control as necessary.

- Inventory management/fuel asset optimization. Fuel managers that can handle ownership taxes and options and financial risks, as well as provide measurability and valuation of coal pile fuel inventory, can minimize the risk of seasonal requirements.

- Onsite handling. Coal blending and quality control along with the development of various upgrades are valuable skills that can enhance operations and reduce maintenance costs. The graph on the opposite page shows the results achieved by one company after implementing a fuel management program. It indicates a significant decline in coal costs (

Facilities burning oiland natural gas should give attention to:

- Supply contract development and management. Developing advantageous contracts and managing them effectively are vital to ensuring the lowest possible costs for any commodity.

- Interstate and local transportation management. The ability to move natural gas from the wellhead to the burner tip should be a requirement for fuel partners. These complex functions involve managing two contracts and paying attention to the numerous regulations that impact cost and reliability.

- Imbalance management . Partners who can effectively handle unused gas or shortages around the original order are able to reduce penalty rates significantly. Increased ability to sell, trade, and store gas as well as deal with a local distribution company's (LDC) balancing and storage rules can play a significant role in the effective fuel management of any facility.

- Dual fuel optimization. Knowing when, how, and where to acquire and use multiple fuels makes fuel switching a cost saving measure as well as a backup supply alternative. All partners should bring this skill set to the table.

- Quality control. Enhancing this function includes establishing sampling programs, receipt verification, and similar measures to ensure consistent quality.

- Access to multiple fuel supplies. Access to multiple fuels should be comprehensive in scope and include No. 2 & 6 fuel oil, jet fuel, K1-kerosene, propane, and LNG.

- Fuel storage and transportation management. Using dual fuels requires consideration of other issues (such as storage and transportation), especially if the plant does not have onsite storage facilities. A good fuel management partner can devise appropriate solutions, determining the best locations, arranging for transportation, and handling all the details.

- Daily nomination process handling. Time-consuming information exchanges with pipelines and the LDC can be reduced through proper handling of this service.

- Commodity supply. Partners should be responsive to any facility needs ranging from term to spot supply.

More info

Technical questions about this article may be directed to the author by phone at 215-841-5640 or e-mail at peastman@exeloncorp.com.

A wealth of outsourcing information is available at www.outsourcing.com , the web site of The Outsourcing Institute, 500 N. Broadway, Suite 141, Jericho, NY 11753; phone: 516-681-0066; fax: 516-938-1839.

Previously published related articles include "Managing energy in a deregulated environment" ( PE , January 1999, p. 36, File 9050) and "Exploring outsourcing" ( PE , March 1999, p 123). The complete text of these articles is available at www.plantengineering.com. Copies of articles may be purchased by calling 630-320-7134.

For additional articles on this topic and related topics, see the "Process and space heating" channel at www. plantengineering.com.





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