Chapter 6 Chemicals Industry

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ContentsPage

Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Product Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Economics of Chemicals Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Energy and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119Production Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119Energy Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120Energy Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . + . . . . . . . . . . . . . . . . . . 121Energy Conservation Through Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Investment Choices for the Chemicals industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128impacts of Policy Options on the Chemicals Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

investment Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130The Reference Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130Projected Effects of Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

TABLES

Table No. Page 30. Definition of SIC 28-The Chemicals and Allied Products Industry.. . . . . . . . . . . . . 11531. Top Ten Chemicals Produced by Chemical lndustry,1981 . . . . . . . . . . . . . . . . . . . . 11632. Energy-intensive Processes in Chemical Manufacturing . . . . . . . . . . . . . . . . . . . . . . . 11933. Comparison of 1981 and 1972 Energy Consumption in the Chemicals industry . . . 12234. Operational and Design ProblemsinEnergy-intensive Equipment . . . . . . . . . . . . . . . 12535. Operational and Design Problems in Heat-Transfer Equipment . . . . . . . . . . . . . . . . . 12636. Funding Sources and Funding Uses of Cash Flow of Fifteen Largest Chemical

Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12837. Types of Energy Efficiency-Improving Projects Undertaken by Chemical

Manufacturing Association Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12938. Chemical industry Projects To Be Analyzed for lnternal Rate of Return (lRR)

Values . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . . ........0 . . . . . . . . . . ........0 13139. Historical and Assumed Growth Rates in SlC 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13240. Reference Case Energy Use Projection, by Fuel 1980-2000 . . . . . . . . . . . . . . . . . . . 13241. Reference Case Energy Use Projection, by End Use: 1985-2000 . . . . . . . . . . . . . . . . 13242. Reference Case Energy Use Projection, by Process Heat Fuel 1985-2000 . . . . . . . . 13243. Reference Case Energy Use Projection, Steam and Power Fuel 1985-2000 . . . . . . 13244. Effects of Policy Options on IRR Values of Chemical Industry Projects.. . ........ 13445. Effect of Lower interest Rates on IRR Values of Chemical industry projects. . . . . . . 136

FIGURES

Figure No. Page 28. Structure of Organic Chemicals Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11729. Capital Spent in the Chemicals industry, 1971-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11830. Comparison of Chemicals Industry Energy Use and Production Output,

1972 and 1981.. . . . . . . . 12231. Chemicals industry Energy Intensity Projection, 1970-2000 . . . . . . . . . . . . . . . . . . . . 13232. Chemical Industry Projections of Fuel Use and Energy Savings by Policy Options,

1990 and 2000... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133


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Chapter 6The Chemicals Industry

INDUSTRY OVERVIEW

Of the four industries chosen for study for this

report, the c hemicals industry is by fa r the mostcomplex. First, it produces several thousandproducts, in contrast to steel, paper, and petro-leum refining corporations, which produce a rel-atively limited set of commodity products in largequantities. Second, it is more diversei. e., it hasmore capital investment choices and a less co-hesive market. Within its SIC 28 classifica tion a reeight three-digit subcategories, as shown in table30. Finally, the chemicals industry has the distinc-tion of using the most energy of the four indus-tries. 1 The 1980 Annual Survey of Manufactures shows its energy use to be 2.7 Qua ds, that is, 22percent of all energy purchased by the industrialsector.

Industry Structure

More than 100 companies in the chemicals in-dustry report energy use data. Interestingly, over

U.S. Department of Commerce, Bureau of the Census, 1980 An-nual Survey of Manufactures: Fuels and Electric Energy Consummed,M80(AS)-4, 1, Washington, D. C., 1982,

Table 30. Definition of SIC 28The Chemicals andAllied Products Industry

This major group includes establishments that producebasic chemicals and establishments that manufacture prod-ucts by predominantly chemical processes. Establishmentsclassified in this major group manufacture three generalclasses of products: 1) basic chemicals, such as acids,alkalies, salts, and organic chemicals; 2) chemical productsto be used in further manufacture, such as synthetic fibers,plastics materials, dry colors, and pigments; and 3) finishedchemical products for use by other industries, for example,paints, fertilizers, and explosives.

SIC 28 is broken down into the following eight subgroups:SIC Tit le281 . . . . . . . . . Industr ial inorganic chemicals2 8 2 . . . . . . . . , Plastics and manmade fibers283. . . . . . . . . Drugs284 . . . . . . . . . Soap, detergent, and cleaning preparations285. . . . . . . . . Paints and varnishes286. . . . . . . . . Industr ial organic chemicals287. . .. ., . . . Agricul tural chemicals288. . .. ., . . . Miscel laneous chemical productsSOURCE Office of Management and Budget, Standard Industrial Classification

Manual, 1972.

half of the top S O chemical producers are not pri-

marily chemica ls compa nies. z Ma ny are petro-leum producers and refiners, such as Exxon andMobil. others produc e c hemica ls only as part of their business enterprise; e.g., Eastman Kodak,Borden, and B. F. Goodrich.

OTA undertook an analysis of a number of smaller firms that produce chemical products, todetermine if they exist in a different environmentand behave differently than do larger firms. 3 I ngeneral, they do not. Small chemical firms tendto be the developers of new products, rather thannew processes. They appear to gain competitive

advantage not by producing standard productsat lower cost, but by conducting research anddevelopment (R&D) that produces new productsor new formulations for existing products.

Product Mix

The top 10 chemicals produced by chemicalcompanies are shown in table 31. Many of thetop 25 chemicals produced by chemical com-panies are used in agriculture, which accountsfor their large production volume; among theseare sulfuric acid, ammonia, and phosphoric acid.

Other chemica ls are used as feedstocks in theproduction of rubber and plastic materials, suchas polyethylene and synthetic fabrics. Within SIC286 alone, products such as plastics, syntheticrubber, nylon, and antifreeze are produced from

just three material feedstocks (see fig, 28).

In the past, chemicals production depended onthe large-scale production of acetylene manufac-tured from coal and on the development of anumber of processes and products using acetyl-ene as a feedstock. Acetone and acetaldehyde,originally made from acetylene, were used as rawmaterials for pharmaceuticals, synthetic rubber,

hem\cal and Engirreer ng News, Facts and Flgu res for theChemical Industry, June 14, 1982,

Technology and Economies, Inc., The /mpact of Se/ected Federa/Polic{es on the Energy Use Patterns of Smaller Industrial Corpora-tions, final report, OTA contract No. 233-4680.0, August 1982,

115


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116 . Industrial Energy Use

Table 31.Top Ten Chemicals Produced by Chemical Industry, 1981

1981 1981 1971-81production production value annual

Rank Name (lb X 10) ($ x 10) growth rate (%) Produced from Maior end use. - . ,1. Sulfuric acid 81.35 $3,250 3 . 4 % Sulfuric dioxide from sulfur or

(H2SO.)

2. Ammonia (N H,)

3. Nitrogen (N 2)

38.07 2,500 2.7

37.31 550 11.2

4. Lime (CaO) 35.99

5. Oxygen (0 2)

6. Ethylene(H2C=CH2)

7. Caustic soda(NaOH)

8. Chlorine (Cl 2)

9. Phosphoric acid(NH3N03)

10. Nitric acid(HNO3)

800 0.4

34.93 525 2.9

28.87 7,000 4.6

21.30 2,500 1.0

21.12 1,500 1.2

19.83 4,000 5.2

18.08 2,300 1.7

SOURCE. Chemical and Engineering News, June 14, 1982, p. 40

textiles, and the like. Now petroleum refining isused to produce a large number of petrochemicalfeedstocks. 4 For the majority of modern organicmaterials, acetylene has been replaced as a feed-stock by other intermediates, notably ethyleneand propylene, which are derived from ethaneand propane, now readily available from petro-chemical sources. Acetaldehyde, now also de-clining in importance, is currently made fromethylene rather than from acetylene. Ethanol,once derived entirely from fermentation (before

1930), is now manufactured commercially by hy-dration from ethylene. Acrylonitrile is now made

4Mellon Institute, Final Report on the Industrial Energy Produc- tivity Project, Vol. 3, The Petroleum Refining industry, DOE con-tract No. DE-ACO1 -79CS-40151, September 1982.

smelter gases: reacted withwater.

Catalytic reaction of nitrogen(from air) and hydrogen (fromnatural gas).

Separated by distillation fromair at cryogenic temperatures.

Limestone (CaCO 3) heated toremove CO 2 , then hydrated tomake Ca(OH) 2; CaO.

Separated from air at cryogenictemperatures.

Thermal and catalytic crackingof hydrocarbons.

Electrolysis of salt brine.

Electrolysis of salt brine. Recov-ery from hydrochloric acid,coproduction in making metals,caustic potash, or potassiumnitrate.

Reaction of phosphate rock andsulfuric acid: burning elementalphosphorus and subsequentreaction with water,

Reaction of ammonia with air,or sulfuric acid with sodiumnitrate.

Fertilizers-700/O; chemicalmanufacture150/o; metalsrecovery and petroleumrefining.

Fertilizers-80%; plastics andtextile fiberslO O /O; explosives 5%.

Inert blanketing atmospheres:chemical processing 14%electronics1 5%; metals5%; freezing agent21%;aerospace8A.

Metallurgy (in steel flux) 45%;chemical manufacture 1O O / O;potable water treatment10%;sewage and pollution control50/o; pulp and paper manufac-tu re5%.

Primary metal manufacture300/o; health services-130/o;metal fabricating330/0.

Fabricated plastics650/O; anti-freezelO O /O; fibers50/O;

solvents50/o.Chemical manufacture500/O;pulp and paper150/.;aluminum50/o; petroleumrefining50/0; soap and deter-gents5/0.

Chemical manufacture500/O;plastics 1 5/0; solvents1 50/0.

Fertilizers850/o; animal feed 5 % .

As ammonium nitrate fertilizers 950/o.

from propylene. Benzene and xylene, once large-ly obtained from c oa l tar, are now primarily de-rived from petroleum refining. Principally in re-sponse to dema nds for synthetic substitutes fornaturally occurring industrial raw materials, es-pecially those strategic materials whose accessis controlled by foreign powers, the chemicals in-dustry has developed new processes and tech-nologies.

Economics of Chemicals Production

The overall economic health of the chemicalsindustry, compared to that of steel and petroleumrefining, is good. As determined by a Chemical


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Ch. 6The Chemicals Industry 11 7

99- 109 0 - 83 - 9


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118 Industrial Energy Use

and Engineering News survey, s 1981 revenue was$182 billion, with a net income of $12.6 billion,or a 6.8-percent return, down slightly from the1979 figure. Over the past decade, profit marginswithin the industry have averaged between 8 and9 percent.

Their high profitability has allowed chemicalcompanies to make investments in capital equip-ment and in research at levels much higher thanthose made by the other three industries studiedby OTA. In 1981, the chemicals industry investedover $13 billion in new plant and equipment, upfrom a 1980 level of $12.6 billion. 6 Figure 29 pre-sents the c apital investment trend for 1971-81.

Capital Investment The chemicals industry spends approximately

one-third as much money on research as on its

entire inventory of c apital projec ts. In 1981, thisamount was estimated to be $4.7 billion forR&D. 7 For comparison, the proportion of fundsspent on research, development, and demonstra-tion (RD&D) by the other industries studied was6 percent for steel, 4 percent for petroleum refin-ing, and 5.5 percent for paper.

SChemica and Engineering News, Facts and Figures for theChemical Industry, June 14, 1982.

5U S. Department of Commerce, Bureau of Economic Analysis,1980 Annual Survey of Manufactures: Statistics for Industry Groups and /ndustries A80(AS)-1, 1982

Chemical and Engineering News, op. cit.

Figure 29.Capital Spent in the Chemicals Industry,1971-81

J u 1970 1972 1974 1976 1978 1980 1982

YearSOURCE: Bureau of Economics, Department of Commerce.

Imports and Exports

Both exports and imports increa sed substan-tially over the past decade. From 1971 to 1981,exports increased by 450 percent and imports in-creased by 513 percent. The U.S. chemicals in-dustry exported products in 1981 valued at$21.19 billion, a ccounting for about 10 percentof the total U.S. exports that year. With importsvalued at $9.88 billion in 1981, a total positivetrade balance resulted of over $11 billion. 8 Be-cause of its extensive international trade, the U.S.chemicals industry is concerned about the im-plementation of tariffs and other barriers to tradein foreign countries.

In the next decade, it is predicted that the U.S.chemicals industry will export less organic chem-icals and plastics and more of the specializedchemical products. It will also import more of the

basic primary chemicals, process the chemicalsin domestic plants, and export the final products.

U.S. producers of industrial organic chemicalsare expec ted to have serious competition fromforeign, state-owned petrochemicals complexesin Latin America and the Mideast. (However,state-operated organic chemicals plants in thepersian Gulf are not expected to be a major com-petitor in world markets in the near future.) Suchplants, whose operations are based in part on po-litical objectives such as job creation and foreigncurrency earnings, and not on the profit motive,

are able to undercut the prices of U.S. suppliers.Domestic producers may thus be unable to com-pete in foreign markets. Unless substantial importrestrictions are applied, they may have difficultymaintaining their domestic market.

producers of the two major chemicals (am-monia and phosphoric acid) used by the agricul-tural sector have completely different outlooksfor the future in world trade. In 1985, the UnitedStates is expected to account for 25 percent of world phosphoric acid production. 9 Exports,which have been high, should remain high forat least the next decade. Phosphate fertilizer pro-duction plants are clustered near the large sea-

ibid. Mellon Institute, Final Report on the ndustria Energy Produc-

tivity Project, Vo/ 5: The Chemicals /ndustry, DOE contract No.DE ACO1 79CS 4 1 51, September 1982.


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Ch. 6The Chemicals Industry 119

ports in this country, reducing the necessity formore expensive rail transport. 1 n fac t, exports of phosphoric acid may be limited not by the worldmarket competition, but by the availability of U.S.port facilities.

Ammonia producers will face a tightening for-

eign market in the next decade.10

Imports fromI bid.

relatively unreliable sources (e.g., Mexico andRussia) have increased substantially. In 1970, am-monia imports amounted to only 3.5 percent ofU.S production. By 1978, imports were nearly 9percent of total domestic production and havebeen increasing since. This situation typifies someof the complex connections between the domes-tic and the international concerns of the chem-icals industry.

ENERGY AND TECHNOLOGYProduction Processes

For the purposes of energy accounting, it is eco-nomical to classify the many unit operations thatoccur in the chemicals industry into a small num-ber of groups. One way to identify these groups

is on the basis of the equipment used to effectthe chemical transformation. Table 32 presentsthe six most energy-intensive processes.

Table 32.Energy-lntensive Processes inChemical Manufacturing

Electrolysis.Electrolysis includes all industrial electrolyticprocesses in which electricity is used in direct chemicalconversion.

Fuel-heated reaction. Processes that require some type ofheat to force a chemical reaction to take place can be sub-divided into low- and high-temperature operations. Energysources include steam (except for high-temperature reac-tion), natural gas, residual oil, distillate oil, and evenfluidized-bed coal combustion. Where precise temperatureregulation is required, natural gas and distillate fuel oil areused.

Distillation. Distillation processes include those that re-quire physical separation of end products from both feed-stocks and byproducts by evaporation and condensation.

Refrigeration. Refrigeration includes processes that com-press and expand a refrigerant, such as ammonia or afluorocarbon, for the purpose of cooling feed stocks or prod-ucts below ambient temperatures.

Evaporation.-Evaporation includes those processes that usepassive-evaporation cooling. In general, the evaporatedwater is lost to the atmosphere, and the heat energy is un-recoverable.

Machine drive.Many chemical industry processes usemachine drive to pump, compress, or move feedstock andend product materials. Machine drive arises from electricmotors, steam turbines, or gas turbines. A subcategory ofmachine drive processesmixing and blending (especiallyin polymerization processes)can be very energy inten-sive due to the high viscosity of the materials.

SOURCE Adapted by OTA from Roberl Ayres, Final Report on Future Energy Con- sumption by Industrial Chemicals Industry, DOE contract NoDE-AC01-79CS40151 , Oct 7, 1981.

As an example of how these unit processes areused to produce particular chemicals, considerthe production of ethylene and ammonia. 11 12

Both are produced in large qua ntities, 27 millionand 38 million lb, respectively in 1980. Both c on-sume large amounts of energy. Together, they il-

lustrate how a typical chemical commodity is pro-duced, when the energy is consumed, and whatparticular opportunities exist to use energy moreefficient I y.

Ethylene is used as an intermediate in the pro-duction of plastics, rubber, and synthetic fibers,which are, in turn, used in industrial and con-sumer products. With its byproducts and deriva-tives, ethylene is a cornerstone in the petro-chemical industry. It is produced by the reactionof steam and hydrocarbon feedstock, followedby thermal cracking. The resulting product mix-

ture is cryogenically cooled to 150 F and com-pressed to 450 to 600 psi, after which the ethyl-ene is distilled from its feedstock and byproductmaterials. The c ombination of heated reac tion,compression, and cryogenic cooling make ethyl-ene produc tion very energy-intensive.

Ammonia is used as a major agricultural fer-tilizer, either direc tly or in combination with nitricacid as ammonium nitrate. It is synthesized bythe reversible reaction of nitrogen and hydrogen,a reaction carried out under elevated pressuresof between 80 and 1,000 atmospheres, depend-

S D. Lyon, Development of the Modern Ammonia Industry, 10th Brotherton Memorial Lecture, Chemistry and /ncfustry, vol.6, September 1975.

2L L Gaines n Y. Chen, Energy and ateria OWS in ~

Production otO efins and Their Derwatives, Argonne National Lab-oratories AN L/CNSV-9, August 1980.


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L

\

* I 9 .

.\ ,

1

- v/Photo credit: PPG Industries, Inc

Major plant for the production of ethylene glycols is being readied for late 1983 operation at PPG Industries Beaumont,Tex., complex. Pittsburgh-based PPG is a supplier of glycol for making polyester fibers, photo film, and plastic bottles

ing on the specifics of the process, and in elevatedtemperatures of 750 to 1,000 F. Nitrogen usedin ammonia production comes from the atmos-phere. Hydrogen comes from the partial oxida-tion and steam reforming of natural gas (i.e., pro-ducing carbon monoxide and hydrogen by par-tially burning natural gas hydrocarbon feedstock).

The resulting produc t mixture must be cryogen-ically cooled and partially distilled to removeargon, urethane, and unreacted nitrogen byprod-uc ts. This produc tion process is similar to thatused in ethylene production in that high-temper-ature reaction is followed by low-temperaturepurification processes.

Energy Use

Ac cording to 1977 Census of Manufactures data for the chemicals industry, nearly 57 per-cent of the energy from purchased fuels and elec-tricity ca me from natural gas, over 16 percentfrom electricity, 11 percent from coal, and 11 per-cent from fuel oil. 13 Within the Industrial in-

organic Chemicals subgroup, the fuel energybreakdown in 1976 was roughly as follows: nat-ural gas, 40 percent; electricity, 40 percent; coal,

J J S Depa~rnent Of Commerce, Bureau of Ce n SUS 9 cf2nsus of Marrufacturers, Statistics for Industry Groups and industries,Vo/ume //: /ndustry Statistics, Part 2 SIC Major Groups 27-34, 1977.


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12 percent; and fuel oil, 8 percent. In the eventof fuel shortages, manufacturers indicated thatonly 38 percent of natural gas needs could bemet by substitute fuels (mainly fuel oil), and lessthan 60 percent of fuel oil needs could be metby substitute fuels (mainly natural gas).

Within the Industrial Orga nic C hemicals sub-group, the fuel energy breakdown in 1976 wasroughly as follows: natural gas, 70 percent; coal,8 percent; and electricity, 7 percent. Fuel oilusage was not shown for this industry. Manufac-turers indicated that only 27 percent of naturalgas needs could be met quickly by substitutefuels; 32 percent of coal needs could be met byother fuels (mainly natural gas).

Many of the generating processes in the chem-icals industry are energy-intensive. Generation of the number two c hemica l, ammonia, is one ex-

ample. Most of the energy in that process is usedto generate hydrogen, as well as to break the ex-traordinarily tight nitrogen triple bonds.

In another example, sodium hydroxide (NaOH)and chlorine (CI 2) are produced by passing astrong electric current through an aqueous brinesolution, again a very energy-intensive process.In contrast, sulfuric acid is made via processeswhich, when summed, are energy producing.

Output from the chemicals industry, as meas-ured by the Federal Reserve Board index, rose50 percent from 1972 to 1981 . 14 Energy use fell4.6 percent in 1980 to below the 1972 level. Thedecrease (1 972-81) could be seen as even largerif electricity were counted at net heat value (3,412Btu/kWh) because part of the decrease is maskedby a fairly sharp (30 percent) increase in the useof purchased electricity. The major savings from1972 to 1981 occurred in the use of natural gas,which was down by 244 trillion Btu from 1972to 1979 and by another 75 trillion Btu from 1979to 1980. Use of coal and purchased steam weredown slightly, while use of residual fuel oil andother gases was up moderately.

One trend that has strongly affected fuel usepatterns was the switch from oil to coal as a fuelfor steam generation. After 1965, use of coal

lq ederal eSerVe oard ndustrja Production, Publication LC77-93930, December 1977.

dec lined sharply so that in 1973, coa l provided22 percent of boiler fuel. Since then, this trendhas reversed; and in 1981, coal provided almosthalf of the fossil fuel used for steam generation. 15

Some companies have forecast their use of coalfor steam to increase to 70 or 75 percent by the

turn of the century. Vendors state that with newpackaged boiler designs (including economizers)thermal efficiencies as high as 83 percent can beobtained from coal-fired boilersefficiencies aresignificantly better than with older technology.Some custom-designed units can exceed eventhese efficienc ies by optimizing systems for par-ticular plants.

Energy Conservation

Over the last decade, the chemicals industryhas increased the efficienc y of nea rly all its

energy-consuming processes. The efficienc y of proc esses using na tural gas, distillate oil, andresidual oil has increased dramatically, while theefficiency of those processes using electricity hasnot changed, According to the Chemical Manu-facturers Association (CMA) aggregate trade as-sociation reports, the 110 chemicals industry firmsreporting in 1981 had improved their energy ef-ficiency 24.2 percent per unit of product com-pared to their 1972 production (see fig. 30 andtable 33).

Most improvement resulted from reduced pe-troleum product use; distillate fuel oil and residualfuel use dropped from a combined 211 billionto 122 billion Btu. Moreover, since 1976 therehas been a 5-percent decrease in Btu consumed,most of it occurring in dec reased premium fuelconsumption. Du Pont, for example, improvedits energy efficiency dramatically in the 1970sand early 1980s to the point where in 1981 itused only 97 percent of the energy used in 1972,while units of productionmeasu red in constantdollar sales of productincreased by 36 per-cent. 16 Du Ponts achievement may be slightlybetter than that of the chemicals industry as a

whole but is probably fairly representative. su s epaflment of Commerce, Bureau of the Census, Annua

Survey of Manufactures: Fuels and Electric Energy Consummed,A 72 AS-4.1 through A80(AS)-4.1 .

16 James orden Ecorlornics and Policy Manager, Energy and

terials Department, E. 1. du Pent de Nemours Inc., Wilmington, Del.


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Figure 30.Comparison of Chemicals IndustryEnergy Use and Production Output, 1972 and 1981

SOURCE.

.1972 1981

.

- 1

.

Energy Production Energy Production

use use

Coal Petroleum

Natural Electricity and Productiongas steam index

Chemical Manufacturing Association and Federal Reserve Board.

OTA analysis indicates that among the factorsthat have brought about this energy efficiency im-provement are the following: 17

Much of the energy savings have come fromimprovements in energy management tech-

niques. This is especially true in the area of steamgeneration and distribution. Among the specificitems identified by OTA are improved mainte-nance of steam lines, thermostat setbacks, andlighting.

Significant energy savings have resulted fromimprovements in the operating practices of fueledreactors and fired heaters. Many of these im-provements have come through the use of com-puterized burner controls, which is a part of theoverall trend in many industrial processes towardcomputer control with feedback optimization.

Improvements in energy efficiency over thepast 8 years have not, for the most part, resultedfrom major proc ess substitution. There are someexceptions including the continued phasing outof synthetic soda ash production in favor of ex-traction from natural sodium sesquicarbonate,and the c ontinued substitution of the wet proc -ess for phosphoric acid production for the elec-tric arc furnac e. O verall, though, the c hemicalmanufacturing processes that were placed in the

17Adapted from Mellon nstitute Fina/ Report on the ndustrialEnergy Project, Vo/ 5: The Chernica/s /ndustry, DOE contract No.DE-AC01-79CS-401 51, September 1982, pp. 14-17.

Table 33.Comparison of 1981 and 1972 Energy Consumptionin the Chemicals Industry

1981 1972consumption consumption

Energy source (billion Btu) (billion Btu)Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930,519.7 773,004.7Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,272,211.9 1,680,160.5Propane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,415.1 3,130.1LPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,234.5 1,580.5Bituminous coal . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,848.6 327,086.5Anthracite coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,409.9 5,210.8Coke. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,854,6 7,456.0Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 905.3 745.4Distillate fuel oil . . . . . . . . . . . . . . . . . . . . . . . . . . 17,644.6 32,777.0Residual fuel oil . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,227.3 178,746.1Petroleum coke . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,118.1 Purchased steam . . . . . . . . . . . . . . . . . . . . . . . . . . 97,868.8 127,143.4Other gases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,224.2 358,256.5Other liquids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,691.2 50,120.7Other solids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,170.9 18,206.9

Total energy consumption . . . . . . . . . . . . . . . . 3,167,334.7 3,563,625.1SOURCE: Energy Efficiency Improvement and Recovered Materials Utilization Report, prepared for DOE by the Chemical

Manufacturing Association, June 1, 1982.


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early 1970s have been supplanted by few new record of improvement. Consider the followingprocesses that account for any sizable portion of examples in energy efficiency improvements fromthe chemicals industrys energy efficienc y im- plants throughout the world:provement,

New and larger plants have saved energy with-

out changing overall process characteristics foundin older plants. Very dramatic results can oftenbe achieved without process change when thevarious energy-saving options are put together ina new plant, as compared to using the same op-tions by retrofitting an older plant. The fact thatnewer plants are usually larger contributes to this

Ammonia (Haber-Bosch Process)

Btu)Energy used per ton

Year produced (10 6

1917, . . . . . . . . . . . . . . . . . 80 01923-50 . . . . . . . . . . . . . . . 7001965, . . . . . . . . . . . . . . . . . 45 01972 . . . . . . . . . . . . . . . . . . 40 01978 . . . . . . . . . . . . . . . . . . 354Source S D Lyon, Development of the Modern Ammonia Industry. " 10thBrotherton Memorial Lecture, Chemistry and Industry, vol. 6, September 1975,IR&T, Industrial Energy Study of the Industrial Chemicals Group, VOI 1, ExecutiveSummary vol. 2, Data Base, IRT-352-R, Arlington, Va. 1974

r -- -

Photo credit: PPG Industries, Inc.

Bigger and better.A workman inspects new giant-sized chlorine production units (left) similar to those that will replaceoutmoded units (right) at PPG Industries Lake Charles, La., chemicals complex. New production units using PPG-developed technology will reduce by about 25 percent the amount of energy required to produce chlorine and causticsoda. Chlorine is used in making plastics and solvents, and in water purification. Caustic soda is used in chemical

processing and making pulp and paper


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Chlorine Cells (Diaphragm)Electricity used per ton

Year produced (10 3 kWh/ton)1916 . . . . . . . . . . . . . . . . . . 4,0001947-73 . . . . . . . . . . . . . . . 3,0001980 . . . . . . . . . . . . . . . . . . 2,200Source The Conference Board, Energy Consumption in Manufacturing (Cam.

bridge, Mass Ballinger Publishing Co., 1974), Mellon Institute, Final Report In- dustrial Energy Productivity Project, vo/ 5 The Chemicals Industry, September1982

Cyclohexane (Institute Francais du Petroles Process)

Energy used per ton produced Year Steam (10 3 Ibs) Electricity (kWh)1963 . . . . . . . . . 568 23.76 1965 . . . . . . . . . 358 15.001971 . . . . . . . . . 403 9.63Source The Conference Board Energy Consumption in Manufacturing (Cam-bridge, Mass Ballinger Publishing Co , 1974)

The rec overy of heat from exothermic or energy-producing reactions has improved. The use of heat exchangers and heat economizing is more

widespread now than in 1972.Significant improvements have been made in

the design of distillation columns for physicalseparation. Improvements in physical separationcan have salutory effects for a chemical firm. First,they can reduce fuel requirements. Second, theycan often decrease feedstock requirements.

While use of premium petroleum fuels has de-crea sed since 1972, use of elec tricity has in-creased markedly. The ammonia subsector prob-ably accounts for part of the recent increase inpurchased electricity. After 1965, most new am-monia plants incorporated single-train, centri-fugal compressors, which are more economical(though less efficient) than reciprocal com-pressors for capacities above 600 tons per day.After 1970, there was also a brief trend towardhigher compression (5,000 psi compared to 2,000psi in earlier plants) to increase the capacity of the synthesis loop and reduce refrigeration equip-ment requirements. In both cases, lower capitalcosts were achieved at the expense of higherenergy costs.

Recently, increased fuel prices (and natural gas

shortages) have resulted in reversals of some of the above trends. Substantial investments in heatrec overy equipment and expander turbines (toregain energy from ammonia as its pressure isreduced) have been made in response to higher

energy prices in effect since 1973. Other typesof add-on units have been developede.g., cryo-genic processes to recover hydrogen and nitro-gen for recycle to the synthesis loop. In addition,most of the low-cost, high-return, housekeepinginvestments have been made.

Changing Feedstock Availability

A major concern of the primary chemical pro-ducers is the availability of feedstoc k materials.Certainly, the industrys susceptibility to a cur-tailment of feedstock supply was made evidentduring the 1973 oil embargo. The United Statesimports an ever-increasing amount of both organ-ic and inorganic raw materials as it depletes itsdomestic resources. The chemicals industry mustrely on relatively unstable countries for its sup-ply of feedstoc ks.

To reduc e their susceptibility to potential feed-stock supply curtailments, chemica l companiesare increa sing their flexibility in the type of rawmaterials they require. Olefin plants, for exam-ple, a re shifting a way from na tural gas, ethane,and propane toward the liquid feeds (naphtha,gas oil, and eventually crude oil). Since plants thatprocess liquid feeds are more complex, becauseof the initial gasification process required they areequipped to shift feedstock mixes with relativeease, although the plants are still constrained tothe same general area of operations.

Shortages of natural gas in the United Stateshave caused some feedstock shifts that are not justified on energy efficiency grounds. Mostnotably, natural gas is no longer the major feed-stock for the production of hydrogen and acetyl-ene. Naphtha and heavy gas oil are now themajor sources of cracking feedstock, and by 1990it would not be surprising if crude oil werecracked directly. Increased demand for byprod-ucts such as propylene and butadiene is one of the driving forces behind this shift. The cost andscarcity of natural gas, the major feedstock forammonia, have removed domestic producers of ammonia from the world market and made it dif-ficult for them to compete with ammonia importsfrom Russia and Mexico. As a result, domesticfirms have invested in researching methods forproducing ammonia from c oal.


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Changing Feedstock Requirements

Chemical companies can reduce their totalfeedstock requirements by increasing conversionefficiencies. * This reduc tion can be done bycarefully monitoring present production proc-esses or by switching to new, more efficient pro-

duction processes. Substantial increases in usefulproduct-to-feedstock ratios can be achieved byimproving product separation techniques. Bycarefully controlling the distillation process, amanufacturer may reduce both his feedstock andhis fuel requirements. Ethylene plants have in-creased their production without increasing theirfeedstock requirements, simply by routing the by-product, propylene, through the ethylene pro-duction process.

Changing Processes

Newprocesses that maximize conversion frac-tions or minimize the length of production chains

have also become important in the past severalyears. For example, the accepted procedure forthe production of acetaldehyde was from ethane,to ethylene, to ethanol, and finally to acetal-dehyde. By 1980, most of the production of acetaldehyde was directly from ethylene, result-ing in a 15-percent improvement in the acetal-dehyde-to-ethane ratio.

Conversion efficiency is the percentage of feedstock materialthat is successfully converted into a desired product.

In examining the processes for efficiently mak-ing industrial chemicals, four generalized ruIesbecome apparent:

1.

2.

3.

4.

Incase

High-energy feedstocks (typically hydrocar-bons) lead to highly efficient (i.e., minimumnumber of process steps) processes for mak-

ing a given chemical.High-yield reactions that require only onepass through a reaction chamber or vesselare the most highly efficient means of chem-ical synthesis because they minimize feed-stock and separation energy.Energy efficiency is maximized when theneed for product separations is minimized.High conversion reactions recycle energyand minimize recovery.

the course of the workshop meetings andstudy visits carried out as part of this analysis,

a number of energy-related problems were foundto be generic throughout the chemicals industryi. e., the problems were not specific to a par-ticular chemical production fac ility. In tables 34and 35, these problems are listed, along with thetypical approaches that have been used to cir-cumvent or eliminate them.

Table 34 describes the problems associatedwith the three largest energy-consuming activitiesin the chemicals industryfurnace operation,vapor compression, and distillation. A numberof the problems involve careful attention to

Table 34.Operational and Design Problems in Energy-Intensive Equipment

Common problems Measures to overcome problemsFurnace combustion Improper air/fuel ratio Provide instrumentation to measure oxygen content in flue

gas (automatic controls)Leaks in furnace stacks Maintenance repairVapor compassion Leaky compressor bypass valves Maintenance repairExcess capacity in motor or turbine Replace with equipment matched to needImproper suction pressure Replace with equipment matched to needIncreasing clearance to lower output Reduce compressor speed to lower outputUse of less expensive and less efficient turbines and Replace with high-efficiency equipment

compressorsDistillation Erratic control of columns Provide automatic controlExcessive reflux, resulting in excessive component Produce minimum quality material

separationImproper feed tray Change process operationNonoptimum distillation scheme Consider energy-saving possibilities such as multifeeds,

side product draw, or cascade distillation schemesSOURCE Office of Technology Assessment.


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Table 35.Operational and Design Problems in Heat-Transfer Equipment

Common problems Measures to overcome problemsSteam traps Faulty operation MonitorLeaking traps Maintenance repairMismatch between steam line pressure and trap operating Use proper application and sizing

range

Steam tracing Leaks Maintenance repairUnnecessarily high steam temperature Substitute another fluid for steamHeat exchangers Fouling Maintenance repairHigher than necessary temperature separation between Design for low-temperature differences by increasing heat-

fluid streams transfer surface areaSOURCE: Office of Technology Assessment.

maintenanc e a nd repa ir; others involve a moreprecise matching between the pieces of equip-ment used in a process i.e., matching electricmotors or gas turbines to mechanical drive re-quirements.

Table 35 describes the general problems foundby OTA to be associated with heat-transfer equip-ment. Again, many of the solutions involve main-tenance and more precise equipment matching.

Energy Conservation ThroughTechnology

In considering the chemicals industry as awhole, OTA finds that there are three main areasfor improving energy use: physical separation,energy recovery, and product integration.

Physical Separation TechnologiesDramatic improvements in energy use can re-

sult from changes in the physical principles em-bodied in certain unit operations, especially inphysical separation. 18 By far, the most widespreadtechnique of chemical separation used today formixtures of liquids is distillation. This is an energy-intensive process, especially as practiced in theformer days of cheap fuel. Already, incrementalimprovements in the process, retrofitted to ex-isting installations, have achieved significant (e.g.,

25 percent) savings in many plants. Further im-provements of comparable magnitude can be ex-pected during the next few years through rede-sign and add-on units, though generally at higher

18Ibid., p. A-92.

costs. Steam distillation columns provide oppor-tunities for heat recovery in larger, integratedsystems.

Alternative approaches to liquid separation in-

clude vacuum distillation, freeze crystallization,and liquid-liquid (solvent) extraction. Dramaticincreases in the cost effectiveness of turbocom-pressors and advances in vacuum pumps andcryogenic technology since the 1950s have vastlyincreased the relative attractiveness of bothvacuum distillation and crystallization relative tosteam distillation. However, the most promisingtechnique seems to be liquid-liquid extrac tion,a process using a solvent with high affinity for onecomponent of the mixture but immiscible withthe remaining components. With this technique,separation involves two steps: decanting andclosed-loop evaporation/condensation of the sol-vent. One company has already used the tech-nique in a synthetic fiber plant, saving anestimated 40,000 bbl of oil equivalent annually.Other applications are being actively considered.

Dehydration (drying) using steam heat isanother energy-intensive separation operationthat can be dramatically improved in many cases.A technique of squeeze-drying wet solids or fab-rics (prior to steam drying) can be adapted fromtechnologies already developed in the paper in-dustry, Separation (prior to disposal by incinera-

tion) of oily wastes or oil-soluble contaminantsfrom water mixtures can be accomplished byusing specially treated cellulose* that has an af-finity for oil. The oil-soaked cellulose can subse-

*A technique developed for oil-spill containment.


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quently be burned, or squeeze-dried and thenrecycled.

Technologies for Energy Recovery andConservation

This category includes both heat recovery perse and improved utilization of energy embodiedin high-pressure gases or steam .19 For example,expansion turbines that rec over kinetic energyfrom a mmonia as it comes off the high-pressuresynthesis loop are being increasingly used.

A variety of engineering schemes are availableto recover waste heat from boilers and exother-mic reactors. A bare burner boiler, operatingwith excess air to ensure complete fuel combus-tion, will typically produce stac k gases at 600F with 6.2 percent oxygen, a stack gas heat lossof 19 percent, and an overall thermal efficiencyof 78 percent. Modest improvements in efficiencycould be achieved by more precise monitoringof stack temperatures, fuel and air intake, andclosed-loop process control. More significant im-provements could result from using the heat of the stack gases either to preheat intake air or in-take water via an economizer. Overall efficien-cy of 85 percent, with stack gas temperatures re-duced to 350 0 F, is readily achievable by eithertechnique.

Many older plants used steam-driven vacuum jets instead of electric-or turbine-driven vacuum

pumps because of lower capital costs. However,in a typical application, the vacuum pump is upto four times more efficient. For example, 80,000Btu per hour are typically used for the electricpump versus 300,000 Btu per hour for the steam

jet. Most existing steam jet-driven vac uum sys-tems will probably be replac ed by 199o, exceptin those situations of low pressure and low flowwhere they will continue to have an ec onomicadvantage.

Production Integration Technologies

Integration is a strategy for justifying energy andwaste recovery that would not otherwise be eco-nomically justified .20 The simplest example iscogeneration of electricity and steam. Most firms

91 bid., p. A-94.20 lbid., p. A-97.

in the c hemica ls industry have several applica-tions of cogeneration under active consid-erationin some cases, based on the use of proc-ess wastes as fuel. One company, perhaps fur-ther along than most, produced 25 percent of its1980 elec tricity requirements from onsite cogen-

eration, a proportion expected to increase to 40percent by 1985.

Cogeneration opportunities exist to produceelectricity or mechanical shaft power as a byprod-uct of existing steam systems. For instance, in onepIant an existing steam boiler produced 300- and40-psi steam (as needed in the plant). By modi-fying the boiler to produce steam at 800 psi and800 F, and interposing a turbogenerator (withexhausts at 300 and 40 psi), enough electricityto supply the plant was generated. Since, utilityelectricity normally requires 10,000 Btu to pro-

duce 1 kWh of electricity, and this operation used4,200 Btu to produce 1 kwh of electricity, therewas a net energy savings of 5,800 Btu/kWh. Manyapplications such as this will doubtlessly be foundin the 1980s.

Potential savings from production integrationextend far beyond the case of cogeneration, how-ever. Production of intermediates, such as ethyl-ene and butadiene, is increasingly being inte-grated into petroleum refining complexes. Thistrend will be accelerated by the shift towardheavier cracking feedstocks such as heavy gas oilor fuel oil because of the greater importance of coproduct ion.

Integration of the production of ethylene, pro-pylene, and a wide range of petrochemicals froma naphtha-based (aromatics-based) scheme is astrong possibility by 1990. Another option wouldbe to integrate ethylene and acetylene produc-tion with ammonia and/or methanol. Ethylene/acetylene coproduction will become increasinglyattractive as distillate prices rise and heavierfeedstocks are used, and will undoubtedly resultin some downstream process switching as acetyl-ene again becomes competitive with ethylene asa feedstock for acrylates, vinyl acetate, and vinylchloride.

In the United States, at least, there is con-siderable interest in redeveloping coal-basedchemical technologies via synthesis gas. Synthesis


16/24


gas is currently produced mainly by steam re-forming natural gas in the presence of a catalystto yield a mixture of carbon monoxide and hy-drogen (CO-H 2). This process is the ba sis of mostcommercial methanol production. In recentyears, there has been a good deal of interest (sup-ported by the Department of Energy (DOE)) incoal gasification by a similar technique, resultingin ammonia and/or methanol, the obvious first-stage chemical products. Interest in methanol is

amplified by the possibility that it may be a viablecoal-based alternative to gasoline motor fuel. Forthese reasons a number of large-scale methanolsynthesis proc esses are under ac tive develop-ment. It is quite likely that methanol will growin importance as a chemical intermediate andthat a significant fraction of its 1990 production(perhaps 5 to 10 percent) will be derived fromcoal.

INVESTMENT CHOICES FOR THE CHEMICALS INDUSTRYGiven traditional means of accounting for cor-

porate funds, major corporations in the chemicalsindustry can finance investments by either inter-nally or externally generated funds. Within theinternal category, there is net income, deprecia-

tion, deferred taxes, or advanced tax credits.From external sources, there are long-term debtand, in some cases, equity stock sources. The firstpart of table 36 presents data for 1979, 1980, and1981 on-the funding sources for the 15 largestchemical companies in the United States. Thesecond part of the table shows how the 15 largestchemical companies have allocated their moneysover the past 3 years. As shown, these major cor-porations devoted over 50 percent of their cashflow to capital expenditures in 1980.

CMA , in reporting energy c onservation im-provements under DOEs Industrial Energy Re-porting Program, listed the aggregate number of energy-related projects undertaken by those 110companies participating in the CMA report. Table

37 lists the generic categories of these projects. The diversification of the projec ts in the listreflec ts the d iversity of the industry itself.

It is unlikely that the trends in energy usage inthe chemical industry since 1973 will simply con-tinue. Although, it is implicitly assumed that con-tinued rising energy c osts will remain the primaryforce driving energy conservation, it can beassumed that the reductions that have beenachieved to date are a result of implementing the

Table 36.Funding Sources and Funding Uses of Cash Flow of Fifteen Largest Chemical Companies

1979 1980 1981$ millions 0/0 of total $ millions 0/0 of total $ millions 0/0 of total

Sources of funds Net income. . . . . . . . . . . . . . . . . . . . . $ 3,801 36.30/o $3,981 33.20/o $4,358 18.20/oDepreciation and depletion . . . . . . . 3,602 34.4 3,818 31.8 4,267 17.9Deferred taxes . . . . . . . . . . . . . . . . . . 427 4.1 679 5.7 1,012 4.2Other internal sources . . . . . . . . . . . 1,093 10.5 815 6.8 1,833 7.7Long-term debt . . . . . . . . . . . . . . . . . 1,210 11.6 2,079 17.3 7,493 31.4Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 322 3.1 630 5.2 4,931 20.6

Total. . . . . . . . . . . . . . . . . . . . . . . . . $10,454 100.0 %0 $12,002 100.00/0 $23,894 100.00/0Allocation of funds Dividends . . . . . . . . . . . . . . . . . . . . . . $ 1,474 14.1 % $ 1,603 13.4% $ 1,845 7.7%Capital expenditures . . . . . . . . . . . . . 5,633 53.9 7,027 58.5 8,344 34.9Additions to working capital . . . . . . 1,075 10.3 1,057 8.8 3,759 15.7Reduction of long-term debt . . . . . . 1,042 10.0 1 ,119 9.3 1,493 6.3Other applications. . . . . . . . . . . . . . . 1,230 11.7 1,196 10.0 8,453 35.4

Total. . . . . . . . . . . . . . . . . . . . . . . . . $10,454 100.0 %0 $12,002 100.0 %0 $23,894 100.00/0SOURCE: Chemical arid Engineering News, June 14, 1982, p, 43.


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Table 37.Types of Energy Efficiency-improvingProjects Undertaken by Chemical Manufacturing

Association Companies

New process units and technologies 25 companies reported new energy efficiency-improving

projects, such as replacing infrared dryers with microwaveunits; improving chlorine cell energy use; instalIing new,

low-density, polyethylene production facilities; and con-verting high-pressure methanol manufacturing facilities tolow-pressure facilities.

Improvements in existing processes 70 companies reported capital projects that replaced ex-isting equipment or added process control to existingequipment.10 companies reported projects that changed materialsusage and thereby improved energy use.75 companies reported changes in plant operations thatimproved energy use.30 companies reported projects that improved productyield, thereby decreasing the amount of energy used perunit of production.

Housekeeping and retrofit improvements 64 companies reported energy-efficiency i m prove merits

from improved maintenance.. 59 companies improved their waste heat recovery. 70 companies invested in improvements i n power and

steam operations.36 companies improved plant heating, ventilation, and air

conditioning. 38 companies reported improvements in energy recoveredfrom waste materials.

. 71 companies improved their process pipe insulation.SOURCE Energy Efficiency Improvement and Recovered Materials Utilization

Report, prepared for DOE by the Chemical Manufacturing Associa-.tion, June 1, 1982

shorter payback, more apparent, and easier toobtain energy conservation opportunities. The in-dustry had to seek a new balance between fac-

tors of production, capital, labor, and energy.Each future reduction in energy use will make thenext increment more difficult or expensive to ob-tain. Moreover, a certain minimum amount of en-ergy must be used and cannot be reduced for agiven amount of industrywide output.

The major trends within the chemica ls industryappear to be as follows:

Continued improvement in equipment effi-ciency and operational management.Improved methods of physical separation.More capital-intensive energy conservationand recovery projects.More production integration (including co-generation) to combine exothermic and en-dothermic reactions and utilize byproductsand waste products efficiently.More use of heavy gas oils and coal as feed-stocks and synthesis gas in production of am-monia and methanol.New processes driven primarily by feedstockcosts and availability.

OTA finds that there is still room for improvedenergy housekeeping and improved process con-trol in many plants. Du Pont, unusual amongchemical companies in that it does most of itsown plant design and engineering, set up a con-sulting service in 1973 to sell energy c onserva-tion engineering services to other firms in the in-dustry. Its consultants claim to be able to reducethe average clients energy bill by 20 percent, 40percent of which can typically be achieved with-out major ca pital investment.

Moreover, equipment suppliers are constant-ly introducing incremental improvementse. g.,

in sensors and microprocessor controls and inmotor, pump, and turbine efficiencies. Thesechanges, together with efficiencies of larger scale,would result in 10 to 20 percent better perform-ance for most new plants in 1990 as comparedto 1980, even if plant layouts were unc hanged.

IMPACTS OF POLICY OPTIONS ON THE CHEMICALS INDUSTRYIn order to analyze the impacts of legislative Information Agency (E IA) that indicated that dis-

op tions on the c hemicals industry, OTA first tillate fuel prices will remain relatively stablemade certain assumptions about economic through the 1980s and then rise at a rate of 2growth rates and energy price trends that might to 3 percent above inflation by 2000.occur between now and 2000. The assumptions, In addition, OTA assumed that the followingpresented in tables 2 and 3 of chapter 1, were five specific trends would occur in the chemicalsbased on energy price projections of the Energy industry.


18/24


Ethylene feedstocks will switch from gaseousfeeds (ethane and propane) to liquid feeds(naphtha and gas oil).More chlorine will be produced from the dia-phragm cell and less from the mercury cell.Ammonia and methanol production fromcoal via synthesis gas will become more

prevalent, espec ially after 1990.Acetylene production will move toward thecrude oil, submerged-flame process.Less phosphoric acid will be produced inelectric arc furnaces.

While some of these trends were drawn pure-ly on ec onomic grounds, some are the result of the increasingly cautious attitude toward the useof limited feedstock resources by the industry.For example, by moving toward liquid feeds, anolefin plant will increase its feedstock flexibilitybecause liquid feedstocks require additional

vaporizing equipment, and this equipment canbe used for a variety of liquid feeds.

Investment Strategy

There is some concern that small c hemicalfirms will respond differently to policy optionsthan will large firms. As part of the OTA analysis,case study visits were made to two small (grossrevenue less than $250 million per year) chemicalcompanies. OTA found no difference betweenthese firms and the larger ones in terms of theirenergy conservation decision making.

Smaller chemical companies do tend, however,to be motivated by a desire to produce productsthat have a distinct market differentiation. Where-as large firms tend to rely on high volumes andhave relatively high break-even points, smallerfirms seek a temporary monopoly or advanta-geous competitive position in some special area.For these smaller firms, it is more important tospend money differentiating their products thanto minimize the c ost of standard produc ts.

Ultimately, smaller firms in the c hemicals in-dustry can be expected to respond rationally to

a Government policy. OTA analysis indicates thata small firm will not take advantage of an initiativesimply because it is there, unless it contributestoward the firms objectives and coincides withits outlook for the economy.

In order to project the impacts of four legislativeoptions, OTA used three types of analytical in-formation. First were the observations of casestudy corporations and workshop participants.Their experiences and perceptions are presentedin the opening paragraphs of the subsection deal-ing with each legislative option. Next, OTA con-

sidered a series of eight capital projects, alongwith their predicted energy efficiency improve-ments and costs. These projects were used to il-lustrate the changes in internal rate of return (l RR)percentages as each legislative option was appliedto the series. Some of these projects were genericto all manufacturing establishments, such as re-placement of older electric motors with more ef-ficient ones or installation of process control com-puter fac ilities. Other projec ts were specific to thechemicals industry, for example, installation of a heat exchanger in an ammonium nitrate pro-duction plant. Table 38 presents brief descriptionsof these eight projects along with a summary of the economic and energy assumptions used tocalculate individual IRR percentages. Third, OTAused the Industrial Sector Technology Use Model(ISTUM). The analysis begins with the refe rencecase.

The Reference Case

The reference case is based on the ec onomicand legislative environment that exists for industrytoday and was presented previously in chapter3. Given the chemical industry reference case,OTA assessment indicates that there will be lit-tle change in capital investment trends from thatwhich has been observed in the past 5 years. Re-cent declines in energy prices may delay projectsdesigned to facilitate fuel switching, especiallythose switching from distillate fuels to coal.Switching from na tural gas energy sources willin all likelihood continue. It seems clear that im-provements in energy efficiency will be dictatedmore at the direction of the economic businesscycle, and by perception of opportunity of risk,than by policy.

The reference case incorporates the 1981 Eco-nomic Recovery Tax Ac t, with its special provi-sions for accelerated depreciation and safe har-bor leasing.


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Table 38.Chemical Industry Projects To BeAnalyzed for Internal Rate of Return (lRR) Values

1. Inventory control A computerized system can keep trackof product item availability, location, age, and the like. Inaddition, these systems can be used to forecast productdemand on a seasonal basis. The overall effect is to lowerinventory yet maintain the ability to ship products tocustomers with little or no delay. In typical installations,working capital costs are dramatically reduced.Project life5 years.Capital and installation costs$560,000.Energy savings O directly, but working capital could be

reduced by $1.2 million.2. Electric motors. -The chemical industry uses electrical

motors for everything from vapor recompression to mix-ing, pumping, and extruding. In this analysis, OTA hasassumed that five aging electric motors will be replacedwith newer, high-efficiency ones.Project life10 years.Capital and installation costs$35,000.Energy savings$16,000 per year at 4/kWh.

3. Ammonia nitrate fertilizer plant cogeneration project. Installation of a turbogenerator unit to recover electricalpower from a steam production facility. Superheated steamis produced at 600 psi and then passed through a mechan-ical turbine to generate electricity. The turbine exhaust,which is 175 psi steam, is then used for normal plantproduct ion.Project life10 years.Capital and installation costs$231 ,000.Energy savings$72,300 per year.

4. Computerized process controlThe most common retrofitpurchases being made for industrial systems are measur-ing gauges, controlling activators, and computer proc-essors. The main accomplishment of such a process con-trol system is to enhance the throughput and quality of achemical production plant with only materials and smallenergy inputs.Project life7 years.Capital and installation costs$500,000.Energy savings$150,000 per year.

5. Heat exchanger in nitric acid plant. -Equipment installedto heat incoming plant gas streams with the exhaust gasfrom a 175 psi steam line.Project life10 years.Capital and installation costs$155,000.Energy savings$41,200 per year.

6. Counterflow heat exchanger.A counterflow heat ex-changer preheats air entering a kiln with the exhaust stackgases from the same kiln.Project life10 years.Capital and installation costs$200,000.Energy savings$53,000 per year.

7. Waste heat boiler.-lnstallation of a heat exchanger andwaste heat boiler in an ammonia plant.Project life10 years.Capital and installation costs$1,425,000.Energy savings$351 ,000 per year.

8. Ammonia plant cogeneratlon project-installation of a tur-bogenerator unit to recover electrical power from a high--pressure, natural gas stream just before it enters thereformer burner.Project life10 years.Capital and installation costs$816,000.Energy savings$193,000 per year.

SOURCE: Office of Technology Assessment.

The gross output of the c hemicals industry isanticipated to grow at a rate of approximately 4percent per year between now and 2000. Con-sider data presented in table 39. Between 1969and 1979, the industry grew at an annual rate of 5.8 percent. That growth rate will probably de-cline slightly as energy prices increase over thenext 20 years. Under the energy price scenarioof the reference case, OTA analysis projects, thefuel to be consumed and the energy service tobe provided between now and 2000* (see tables40 and 41).

Tables 42 and 43 show that process heat, whichshould decrease from 526 trillion to 379 trillionBtu, will shift from the proportions of 76 percentnatural gas, 13 percent oil, and 11 percent elec-tricity to those of 70 percent na tural gas, 14 per-cent oil, and 15 percent electricity. In steam andpower generation, natural gas will decrease from

70 percent of the 2,456 trillion Btu to 34 percentof the 3,180 trillion Btu predicted to be used in2000.

Figure 31 shows that the energy intensity of theaverage product in the chemicals industry is pro-

jected to fall from its present value of 17.6 thou-sand Btu per pound of product to approximate-ly 15 thousand Btu per pound by the end of thecentury. Figure 32 shows that fuel use is projec tedto grow only slightly from its present level of 6.8Quads to just over 8 Quads by 2000, assumingthe energy price and product growth rates builtinto the initial parameters of OTAs modelingefforts.

Projected Effects of Policy Options

The following sec tions describe the projec tedeffects of the four policy options i n comparisonto changes in the chemicals industry energy useand product energy intensity in the referencecase. Figure 32 presents a graphical overview of the impact of these policies.

Option 1: Removal of AcceleratedDepreciation

Removal of accelerated depreciation is projected to have little impact on energy use in the

It should be noted, once again, that energy demand projectionsare predicated on a set of exogenously determined energy pricesand a fixed product output.


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Table 39.Historical and Assumed Growth Rates in SIC 28

1969-80 1980-85 1985-90 1990-2000All manufacturing FRB a growth rate . . . . . . . . . . 3.250/o 3.9 /0 4.3 /0 3.7 /0Chemical industry FRB a growth rate . . . . . . . . . . 3.9 /0 5.0 /0 5.00/0 4.60/oFuel price, gas ($/MMBtu) . . . . . . . . . . . . . . . . . . . 5.0 6.3 9.0Fuel price, residuum ($/MMBtu) . . . . . . . . . . . . . . 5.0 6.2 9.0Fuel price, coal ($/MMBtu) . . . . . . . . . . . . . . . . . . . 2.2 2.3 2.4

Fuel price, electricity ($/MMBtu) . . . . . . . . . . . . . . 13.8 13.7 13.8aFederal Reserve Board.

SOURCE: Office of Technology Assessment

Table 40.-Reference Case Energy Use Projection, by Fuel: 1980-2000(In million Btu)

Gas oil Coal PurchasedYear Fuel F eeds to ck Fu el Feedstock Fuel e le ct ri ci ty Total energy1980 . ......2,114 388 377 1,711 287 537 5 , 4 1 41985 . . . . . . .2,085 371 369 2,002 462 558 5,847

1,794 333 439 2,431 829 613 6,4391,201 246 518 3,268 1,636 702 7,571

aAt 3,412 Btu/kWh.SOURCE: Office of Technology Assessment.

Table 41.Reference Case Energy Use Projection, by End Use: 1985-2000(In million Btu)

MachineYear Process heat Steam and power drive Electrolysis Feedstocks Total1985 . . . . 526 2,456 585 177 2,163 5,8471990 ., . . 515 2,640 644 129 2,511 6,4392000 . . . . 379 3,180 681 151 3,180 7,571SOURCE: Office of Technology Assessment.

Table 42.Reference Case Energy Use Projection,by Process Heat Fuel: 1985=2000 (In percent)

Year Total Gas Oi l Coal Elec t r i c i t y O ther a

1985 . . . . . . . 100 76 13 11 111990 . . . . . . . 100 79 10 1 10 2000 . . . . . . . 100 70 14 1 15 aChemical byproducts and waste products used as fuels.

SOURCE: Off Ice of Technology Assessment.

Table 43.Reference Case Energy Use Projection,Steam and Power Fuel: 1985=2000 (in percent)

Year Gas Oi l Coal Other a

1985 . . . . . . . . . . . . . . . . . . . . . . . . . 70 8 18 41990 . . . . . . . . . . . . . . . . . . . . . . . . . 56 11 30 32000 . . . . . . . . . . . . . . . . . . . . . . . . . 34 14 50 2a

Chemical byproducts and waste products used as fuels.SOURCE: Office of Technology Assessment.

Figure 31 .Chemicals Industry Energy IntensityProjection, 1970-2000

1970 1975 1980 1985 1990 1995 2000

Year

SOURCE: Off Ice of Technology Assessment


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12

10

8

6

4

2

0

Figure 32.Chemical Industry Projections of Fuel Use andEnergy Savings by Policy Options, 1990 and 2000

Fuel Use Projections

Naturalgas

Oil Coal Purchasedelectricity

1990 2000

Ref No EITC Btu Cap Ref No EITC Btu Capcase ACRS tax avail case ACRS tax avail

Fuel Savings Projections1.0

0.9

0.8 -

0.7

0.6 -

0.5

0.4 -

0.3 -

0.2

0.1

0.0

Recovered Cogeneratedenergy energy

1990 2000

-

Ref No EITC Btu Cap Ref No EITC Btu Capcase ACRS tax avail case ACRS tax avaiI

SOURCE: Office of Technology Assessment

99- 109 0 - 83 - 10


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chemicals industry, since the accelerated costrecovery system (ACRS) effects are so dependenton the generaI investment climate. OTA analysisindicates that the energy intensity decline withAC RS removal is coincident with the referencecase energy intensity projec tion over the next 17years. In addition, the fuel use projections are vir-tually identical for both the reference case andthe removal of accelerated depreciation, asshown in figure 32.

Table 44 presents the IRR calculations of theeight chemical projects under both old deprecia-tion and accelerated depreciation schedules. Asshown, there is essentially no change betweenthe two columns of calculations, nor is there anychange in the relative rankings of each of the proj-ects. In sum, energy use, compared to the refer-ence case, is unaffected by removal of the ACRSdepreciation schedule.

Option 2: Targeted Energy InvestmentTax Credits

Targeted energy investment tax credits (EITCS)of the magnitude discussed in this report will like-ly have little effect on energy efficiency in thechemicals industry between now and 2000. Suchincentives are perceived as having three func-tions. First, they a re useful for increasing the IRR,thereby presumably elevating the desirability of a project that would not have met the hurdle-rate cut-off for consideration as par-t of a corpora-tions capital plan. OTA calculations show thata 10-percent EITC would change the IRR by 3 to6 percentage points, depending on the length of

a projects lifetime. This change is not largeenough to influence significantly the decision toimplement a capital project. OTA was unable tofind evidence of a chemicals project that was in-fluenced by a 10-percent EITC.

Second, targeted tax credits increase general

cash flow in an energy-intensive company. Logicwould dictate that if an organization were to in-vest 25 percent of its funds in energy efficiency-improving capital stock, to the degree that moremoney is generated for investment through sucha credit, 25 percent of that additional moneywould go to energy efficiency-improving equip-ment. At best, however, this is speculative. Thecase study firms and workshop panelists state thatsome energy would be saved with increased cashflow, but the amount saved is unquantifiable andvery company-specific.

The third reason for justifying tax credits is toraise the awareness of corporate managementthat saving energy is important, not only for prof-itability, but also for the national interest. Al-though the effect of this rationale is unquantifi-ab le, workshop panelists say it could be an im-portant motivating influenc e to some organiza-tions.

OTA analysis projec ts that a 10-percent EITCwould produce no change in chemicals industryenergy intensity from that projected in the ref-erenc e c ase. Figure 32 shows that the fuel use

patterns would be unchanged as well, To illustrate the effect of a 10-percent EITC on

the IRR, the eight chemical industry projects

Table 44.Effects of Policy Options on IRR Values of Chemical Industry Projects

Policy option $1/MMBtutax on natural gas and

Project Reference case ACRS removed 10-percent EITC petroleum products1, Inventory control . . . . . . . . . . . . . . . . . . . . . . 87 87 87 87 (No fuel)2. Electric motors . . . . . . . . . . . . . . . . . . . . . . . 43 43 48 51 (Electric)3. Fertilizer plant cogeneration project . . . . . 18 18 20 18 (Coal)4. Computer process control . . . . . . . . . . . . . . 16 16 22 19 (Oil)5. Nitric acid plant heat exchanger . . . . . . . . 15 15 18 21 (N. Gas)6. Counterflow heat exchanger . . . . . . . . . . . . 15 15 18 19 (Oil)7. Waste heat boiler . . . . . . . . . . . . . . . . . . . . . 11 11 14 16 (N. Gas)8. Ammonia plant cogeneration project. . . . . 11 11 15 17 (Gas)SOURCE: Office of Technology Assessment.


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previously described were analyzed with andwithout the tax credit. In table 44, the IRR foreach project is presented. As shown, only twoprojectsprojects 4 and 8changed their relativerankings. However, such changes are unlikely tocause projects 4 and 8 to be undertaken at theexpense of projects 3 and 7. There might be otherfactors which the investment tax credit might sup-plement or bolster to cause the project to be un-dertaken, but the tax credit alone would not beso motivating.

Option 3: Tax on Premium Fuels

OTAs assessment of the impact of a fuel taxof $1 -per-million-Btu fuel tax on natural gas anddistillate fuels is that it would have a positive ef-fect on improving energy efficiency but couldhave an overall negative effect on the U.S. chem-ica ls industry with respec t to foreign c ompetition.

OTAs ISTUM analysis projec ts a premium fuelstax to have little effect on energy use in thechemicals sector. The energy intensity of chem-icals industry products is projected to be withina percentage point of being identical to that of the reference case. However, as shown in figure32, fuel use patterns are projected to shift slight-ly. A premium fuels tax would cause natural gasconsumption to fall by approximately 10 percent,while coal would increase by a similar amount.[t is also noteworthy that a premium fuels tax

would decrease cogeneration of electricity, sincethe most reliable and efficient fuel in cogenera-tion units is natural gas. OTA projects that cogen-eration could fall by 25 percent under the pre-mium fuels tax scena rio.

If a premium fuels tax were to be levied, mul-tinational chemical companies would probablybuild produc tion fac ilities outside U.S. bounda-ries in order to take advantage of lower energyprices. The products would then be imported tothe United States or shipped to other countries.In either case, this would adversely affect U.S.

balance of payments, since chemical trade gen-erated an $11 billion positive flow in 1981.

The fuels tax would also change the IRR per-centages, as indicated in table 44. The effect of the fuel tax on the eight sample projec ts would

be more pronounced than in the case of the EITC. The gain in the IRR wa s almost 6 percentagepoints for project S, the nitric acid plant heat ex-changer, for example. The overall effect on mostof the projects was to increase the IRR overall by4 to 6 points.

Option 4: Low Cost of Capital

At present, the availability of capital is not amajor constraint in the c hemicals industry. Thechemicals industry has been profitable over thelast 10 years, especially compared to the steel in-dustry. High interest rates have not hurt chemicalfirms directly, although they have indirectly de-creased the demand for chemical products in thehousing and auto industry. Moreover, chemicalcompanies have been able to borrow funds

where needed, Although making funds availablefor general investment at lower interest rates doeshave an impact on the IRR, the energy, employ-ment, and capital investment consequences are,at best, difficult to estimate.

Energy intensity is projected to fall in approx-imately the same fashion with the cap ital avail-ability option as in the reference case, althoughthe projected level is slightly higher than with thereference case. Figure 32 shows that with less ex-pensive capital, chemicals industry firms wouldinstall more cogeneration capacity, and therebydecrease purchased electricity demand while in-creasing natural gas use. In a sense, this increaseis an energy accounting artifac t. Fuel use is be-ing switched from public utilities to the industrialsector. As with all cogeneration, the effect on theenergy economy is to make the United Statesmore energy efficient with cogeneration, eventhough it looks less efficient for the chemicalsindustry.

In order to illustrate the effect of lower interestrates on IRR, OTA first assumed that the chem-icals industry projects would be funded by debtfinancing. In the analysis, shown in table 45,those projects that were good investments at theoutset continued to be good investments with thechange in interest rates. While the IRR valueschanged slightly, none surpassed the others witha low cost of capital option.


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Table 45.Effect of Lower Interest Rates on IRR Values ofChemical Industry Projects a

Reference case IRR IRR with policy options:Project with 16/0 interest rate interest rate of 8/01. Inventory control . . . . . . . . . . . . . . . . . . . . 385 3702. Electric motors . . . . . . . . . . . . . . . . . . . . . 93 973. Computer process control . . . . . . . . . . . . 3 6 444. Nitric acid plant heat exchanger . . . . . . 35 395. Counterflow heat exchanger . . . . . . . . . . 33 386. Ammonia plant cogeneration

project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 317. Fertilizer plant cogeneration project . . . 26 288. Waste heat boiler . . . . . . . . . . . . . . . . . . . 24 27aAll projectcts are assumed to be two-thirds debt financed and one-third equity financed,SOURCE: Office of Technology Assessment.

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Chapter 6 Chemicals Industry