World industry trims its use of energy

Press, 21 January 1982, Page 12

World industry trims its use of energy

From “The Economist,” London

Eight years ago last month, the world kissed goodbye to oil at $2 a barrel. Along the way to $34 a barrel, companies and people have learnt that dull talk about energy conservation can be summed up in one exciting word: cash. Where have the savings been made, and what more can be done?

“There are some minor uses of energy that could be regarded as strictly non-essential — but their elimination would not permit any significant savings.” The words come from the Chase Manhattan Bank, in a weighty study on American energy prospects to 1985. They were written in 1972, and they were nonsense.

At the time, though, that can’t-do-much-about-it view was widely held. Energy equalled growth, growth equalled energy. Between 1960 and 1973, industrial output in the O.E.C.D. countries rose by 6 per cent a year — and industry’s energy consumption by 5 per cent a year. The vice has since been broken: between 1973 and 1980, industrial output rose by 2 per cent a year but industry used less energy at the end of the period than it did at the beginning (see chart ll-

Three cheers? One would be more like it. because:

• Total energy consumption has not been cut, even though industry has the largest appetite. The other two big burners used more in 1980 than they did in 1973 — 1.8 per cent a year more by residential and commercial users, 1.75 per cent a year by transport. • Oil — the price leader, and the most essential and most unreliable of all fuels — provided only 36 per cent of industry's needs in 1973, so has been less squeezed than other fuels by industry's good housekeeping. It counted for everything in transport (well, almost everything — 99 per cent of the total), and a lioness’s share of

residential and commercial use (46 per cent). These two caveats may themselves be changing. The 1980 s have begun with O.P.E.C. on the ropes. Its production dwindled to a mere 23M barrels a day on average in 1981, compared with a record 31M barrels a day in the heady days of 1979. Some oil producers have slashed their prices, cowed by Saudi Arabia's determination to reimpose a unified price structure on O.P.E.C. by flooding the market with cheaper oil.

Meanwhile, demand has tumbled — by' 8 per cent, in the industrial countries in 1980, perhaps by as much again in 1981. They bought less oil for one bad reason — recession — and for two good ones. First, they were substituting homegrown power for imported oil. Second, and at this stage much more important, the economising trend — cutting demand for oil without cutting demand for everything else — has continued, and may even have accelerated. In the words of Professor Morris Adelman of the Massachusetts Institute of Technology: “A shift in relative prices acts like a glacial drift — imperceptible in the short run, irresistible in the long run.”

The glacier starts to move only when higher prices of, e.g. crude oil or mined coal are actually pushed through to the final users. That happened first, and has gone furthest, in industry. Battered car-owners and airlines may find it hard to believe, but fuel prices in transport fell by 9 1z 2 per cent in real terms between 1974 and 1978 (see chart 2). By 1980 they were only 24 per cent up on their 1973 level, whereas industry's prices had doubled in real terms. In the past two years or so, Governments have stopped pampering the motorist, which is why some big savings can be ex-

pected in transport in the 1980 s. Price increases have varied between countries even more than they have between types of users. Japan has led the field, its real energy prices almost trebling between 1973 and 1980. Taking up the rear. Canadian prices rose by barely 30 per cent in real terms. The United States, which started off with the lowest prices, boosted them by 120 per cent. It still guzzles more energy than the whole of Western Europe and Japan put together, so if America economises the whole world won’t catch cold. From the brown-riced crowd to the most sober-minded engineers. energy saving has its devoted disciples. Sometimes they go overboard, suggesting that the most sensible thing any company and household can do is to save energy. Not so: what they want to do is save money. The cost of installing less thirsty boilers or keeping in heat may far exceed the benefits of lower fuel bills.

For some industries, dearer power has attacked every line of their balance sheets and made slabs of their machinery redundant. For others, it has been a marginal imposition — rather like having to top up the pension fund a little or subiise canteen meals. It all .epends bn energy’s share in total costs. That is around 20 per cent or more for such heavy industrial users as iron and steel, paper and pulp and cement; for others, it can be as low as 5 per cent. And the larger power costs loom in total costs, of course, the greater rewards from saving it.

That explains why some industries initially do little more than improve their housekeeping. Switching off lights in empty offices, turning, down the thermostat in winter (and up in summer) — any company can do that kind of thing, at little or no cost. Some small investments — lagging pipes, maintaining boilers — will repay themselves in less than a

year. The next steps take longer; two years, perhaps, to switch company cars from Mercedes to Mazdas, three to four years to replace oil-fired with coal-fired boilers. Whatever is done, it needs to show quick results: with interest rates in the teens, few companies will consider an investment that does not pay for itself in less than five years. And the really big investment decisions ’ — new machinery, a whole new factory — will often be dictated much more by a wish to limit labour costs or to make shinier widgets than to cut fuel bills. Conclusion: the easy part of

power saving is more or less over. The heavy users have changed their technology and chalked up big economies; the rest have simply changed their wavs.

Some of the savings made by companies may seem trifling, but every little bit counts. It took an oil surplus of only 2M barrels a day to transform oil from a sellers’ into a buyers’ market in 1981. Those 2M barrels a day represent less than m per cent of the world’s annual energy consumption. A not impossible resolution for 1982 would be to save another lU= per cent.