Energy efficiency – Prerequisite for profitability of production

July 11, 2013

One way to optimize costs and increase profitability is to apply energy efficiency principles in company operations. Statistics indicate that with a well thought out and consistent application of the principles of energy efficiency, costs in this segment may be reduced by as much as 40%. Priority projects and methodology of application of energy efficiency principles in the work of NIS Company were the topics of interview that Balkan magazin’s reported discussed with Alexey Belov, Executive Director of Energy Block of the most successful Serbian company. How was the decision made within the NIS to form the Energy Block? What were the goals that were set before you at the beginning of your work? In 2011, the NIS’ Board of Directors adopted the Company's Long Term Strategy for the period up to 2020. One of the provisions of this Strategy envisages transformation of NIS from the national oil and gas company into an international energy holding. In order to implement this task, it was decided to form Energy Block within NIS i.e. a separate specialized organizational unit within the Company. Our primary task is the implementation of projects related to generation of thermal and electrical energy. In fact, this constitutes the conversion of NIS into an energy company. On 3 July 2013 we took our very first step: within the implementation of the program of exploitation of dissolved gas, we launched an experimental operation of the first small electrical cogeneration station of 1 MW capacity, not far from Sirakovo (Veliko Gradište municipality). I will discuss utilization of dissolved gas to a further extent a bit later, for now I will just say that NIS was the first company in the Balkans to implement this technology in its work. Nobody did this before us. If we are to discuss the prospects for the development of capacities for generation of electricity, I can tell you that in the next three years we plan to have in our assets the total of up to 500 MW generation capacity. No easier task which was set before us was to increase energy efficiency of all NIS’ organizational units, primarily that of our largest consumers of energy resources – Processing and Exploration and Production Blocks. We have three crucial areas of operations. Firstly, measures to reduce energy consumption, primarily through detection and removal of sources of irrational use of energy resources. That includes austerity measures and regulation of the use of energy through administrative resources, but also through investments in new equipment which, in its operation, uses energy-saving technology. The second method is by using NIS’ existing resources, such as dissolved gas that I have already mentioned, to create our own generation capacities. As an example I can give you our long-term program of exploitation of dissolved gas through cogeneration: we use the gas, which is usually burned on a flare, to generate thermal and electrical energy. By the end of this year on NIS’ deposits we plan to put up as many as eight cogeneration modules with a total capacity of 7.65 MW. They will be installed in the following locations: Velebit, Kikinda, Turija, Boka, Bradarac, Maljurevac, Sirakovo and Srbobran. The amount of funds that we will invest in the project only in this year exceeds 10 million euros, and it is only the first phase of exploitation of dissolved gas. By the end of 2014, we plan to install 14 cogeneration modules on the Company’s wells with the total capacity of 25 MW, and the value of the investment will exceed 30 million euros. Another one of our interior resources are oil wells, about 80 of them, which are now being tested at locations near Nakovo and Kikinda. What is most interesting for us are the possibilities for development of geothermal projects in these wells, for generation of thermal and/or electrical energy. We are currently working on the preparation of a pilot project at Nakovo location, where we plan to install a geothermal station of 1 MW capacity. No less interesting are the prospects of cooperation with the city of Kikinda: if we succeed in its realization, we can shift the entire town supply from thermal to geothermal resources, as the number of old wells allows this shift. Such projects have a number of advantages such as that they do not require large capital investments (about 50 percent of the cost are costs of drilling), and they do not carry a great risk, because we already have preliminary knowledge as to the potential and features of wells. Generally speaking, our plan is to bring our capacities in the area of geothermal generation up to the level of 30 MW. If we take into consideration the fact that, in our work, we plan to use the latest technologies, as always, the total investment will amount to tens of millions of euros. Now I would not go into details, because right now we are working on developing these projects. If we are to discuss processing, we have a large amount of “secondary” heat that can also be used in other production processes, thus reducing energy costs. These two directions are crucial for increasing energy efficiency. And finally, the third direction – the “large” generation, i.e. participation in projects aimed at commercial power generation for operation in the domestic and regional electricity market. Here we are considering two main projects: TETO Pančevo with 200 MW capacity, the project which is practically ready for implementation, and a reconstruction of TETO Novi Sad, with an increase in the capacity of the station to 240 MW. Currently, together with the Slovak company GGE we are in the process of negotiations with the owners i.e. “Elektroprivreda Srbije” and the city authorities of Novi Sad. Implementation of projects in all three areas is a mandatory requirement for a company to have the right to call itself an energy company and energy-efficient company and to be competitive and profitable. It is important that these measures are not implemented individually, but as part of a large and a well-thought out program, asonly then the effect of its implementation will be maximized. We would like to get some more details on energy efficiency. It is now clear to everyone that, in the existing conditions, introduction of energy-saving technologies and rational use of resources is one of the ways to preserve profitability of business operations, which is primarily related to the production with high energy consumption, as in the case of NIS. How is your company tackling this task? The situation in Serbia, if we talk about energy efficiency, is such that there is a lot of room for improvement. According to expert estimates, street lights in Serbia consumes up to 50% more energy than in the European Union. On average, in the European Union one square meter requires the energy cost of 100 kW / h, while in Serbia it spends between 120 and 150 kW / h per year, therefore there is a lot of room for improvement to change the indicators for the better. Implementation of energy efficiency programs in the NIS Company began several years ago. One of the priority directions on which we are working together with our colleagues from Refining is the NIS Refinery in Pančevo. It is perfectly clear that the costs of energy sources make up about 60% of the total costs of the Refinery, and there is a manoeuvring room in terms of enhancing efficiency of the use of energy sources. Administrative measures, increasing labour discipline, introduction of monitoring of expenditure of energy sources produce positive results fairly quickly. In addition, certain investments were made to procure new equipment: the insulation in process furnaces of the atmospheric distillation unit has been replaced and the regime of their work has been corrected, then the operation of electric engines is regulated in a number of plants, the amount of electricity that is produced in the refinery is increased. All of this cost the Company around 700 million dinars, and based on the results from year 2012, the economic effect is about two billion dinars. It is important to stress that a major contribution to the increase of energy efficiency of the entire Refinery’s operation was made by commissioning of the plant for light hydrocracking MHC/DHT, in whose construction cutting-edge energy saving technologies were applied. Finally, we were able to correct to a great extent the indicator of average consumption for the production of energy resources. For instance, we used to spend 161.5 kilograms of reference fuel to produce a ton of steam, and now this indicator is reduced to 138.4 kilograms. I am positive that the real cost savings results from the use of modern technologies in our work and our decision to apply best international practices. I believe that experts would be interested to know that the indicator of energy expenditure in Pancevo Refinery calculated as per Solomon method went down from 182 points in year 2009 to 161 points in 2012, and by 2020 we plan reduce it further to 105 points. Of course, we do not intend to stop here. The program of increasing Refining Block’s energy efficiency in 2013 / 2014 provides for optimization of compressor and pump systems of Pančevo Refinery and a number of other technical and technological interventions. In accordance with the plan, the total value of investments only in the growth of energy efficiency of refining in this period should amount to around two billion dinars. However, your energy efficiency activities do not stop at Refining Block, correct? Yes, you are right, they do not stop there. As I have already mentioned at the beginning of this conversation, the program of co-generation capacities has been launched at our wells. This is a part of a larger project of exploitation of dissolved gas. Simply put, we are using the advantages that the existence of this gas gives us, as for us its use in the production of thermal and electrical energy is more profitable than burning it on flare. Cogeneration on wells is a tool that allows us to monetize gas resources. I have to say that our project is just a part of a larger cogeneration program of a more efficient use of gas resources of the Company, in which we plan to invest six billion dinars. I want to emphasize that setting up of these cogeneration modules on wells is mandatory in Russia. Oil companies have no right to burn dissolved gas just like that, but they have to turn it into electricity and heat. In Europe, the situation is almost identical: the use of dissolved gas is a very topical issue both from an economic and environmental point of view. Therefore, implementation of this program in NIS is yet another example that our Company actively applies the most advanced international and EU practices in its work. I have to add that the exploitation of dissolved gas in NIS is a serious and long-term project. Thus, within the project of a full automation of tracking of all flows of material goods, by the end of July this year, we already plan to fully automate the calculation of volume of dissolved gas. We plan to do this by installing the most advanced meters for this use supplied by the most prominent companies in this field of work i.e. Kronhe from Germany and Elster from the Netherlands. If we're specifically talking about small cogeneration, we are using dissolved gas to produce thermal and electrical energy: heat is used for infrastructure, thereby reducing the consumption of energy resources by an average of 20-40%, and we intend to deliver electricity to the domestic market, whose full liberalization is planned as of 1 January 2015. It is important to note that we are now in the final phase of formation within the Energy Block and the Electricity Trade Directorate. Why is this important? Because formation of specialized organizational units will provide us with an optimal balancing of flow of electricity, including the one within the Company, depending on fluctuations in the consumption and volume of purchasing electricity, which will lead to an increase in the efficiency of entire NIS’ business operations. In addition to the foregoing, since the beginning of year 2013, we have been introducing the project of implementation of international standard ISO 500001:2011 Energy management systems in the Company’s operation. The task before us is the same: to reduce the consumption of energy resources in order to create a modern and efficient system of energy management in the Company. Understandably, it would be difficult to implement the project at the same time fully in all organizational units of the Company. For this very reason, together with our consultant, a well-known European company TUV, we have chosen several “points” where the standard ISO 500001:2011 will be introduced as a pilot project. Not to sound too general, I will specify that this concerns the power plant in the Pančevo Refinery, the Refinery itself, NIS’ oil warehouse in Smederevo and Mali Požarevac Petrol Station, and, within the Exploration and Production Block, Severni Banat Unit. The Company’s business centres will not be neglected either as we are currently finalizing the analysis of energy audit data that we performed in April whereupon we will propose a series of concrete measures to improve the situation with the consumption of energy. However, we are not limiting ourselves to solving the issues of energy efficiency only within the Company, as we strive to promote energy efficiency in the community as well. For example, within the framework of the program of open competition in year 2013 we are also going to realize three projects in this field. This concerns installation of energy efficient lighting and a number of targeted lectures in the Elementary School Đuro Jakšić in Zrenjanin, installation of solar panels in the Primary School Besedeš Jozef in Kanjiža and building a wind power generator with the capacity of 2kW for the needs of Technical School in Pančevo. We will spend the total of about three million dinars for these projects. How will the project of introducing standards of energy management ISO 500001:2011 be implemented? The project is being implemented in several stages. The first thing to do is perform the diagnostics of the status of each of the facilities we have chosen, thanks to which we will know what to do and how to do it should be done. Next, a package of concrete measures will be created for each facility, and implementation will begin after their consideration and harmonization. It is important to emphasize that staff training constitutes an important element as well as developing the staff awareness of the importance of energy management. With this end in mind, we have recently held a seminar for NIS’ top managers, and soon it will be held for other employees of the Company. Activity schedule is as follows: in year 2013 we were doing energy audit and giving training, primarily to the members of the working groups within the NIS, and preparing everything that is necessary for certification. Then in year 2014, we will receive the certificate and slowly introduce the standard in everyday use. In general, our task is not only to increase the level of efficiency of use of energy resources in all organizational units of the Company, but also to reduce environmental risks. What is now very popular in the world and in Europe are the renewable energy projects. Is NIS doing anything in this respect? Yes, we are also taking action in this respect. I have already discussed the projects in the field of geothermal energy. Our priority is the construction of Plandište wind farm whose capacity should amount to 102 MW. Its commissioning is scheduled for 2014. Wind generation will allow us to not only use renewable resources to generate electricity but also to reduce SO2 emissions into atmosphere which cause the greenhouse effect. I must say however that to us this is not the main course of action. We are pursuing the Strategy of Development of Renewable Energy, adopted by the Serbian Government and developed in accordance with EU Directive 2008/29/EU, according to which, by year 2020, Serbia should increase the share of electricity from renewable sources from current 21% to 27% of total consumption. Balanced package of projects, the use of all potential opportunities that the Company has, development of environmentally sound projects in renewable energy, working towards increasing energy efficiency with the use of cutting-edge technology –successful realization of these projects gives NIS the right to call itself an energy holding on the EU level.