Oil prices: High and going higher?

Clearly, oil prices are on the rise after decades of relative stability. Crude oil prices remained relatively low and flat between 1986 and 2003, providing nearly 20 years of inexpensive oil.

Prices have risen sharply since then, with worldwide average oil prices spiking at $70 a barrel this summer and declining to about $55 this fall, according to the U.S. Department of Energy (DOE).

The DOE predicts prices will decline in the short term (to about $47 a barrel in 2014) but then rise steadily again (to $51 in 2020 and to $57 in 2030). Other organizations' forecasts vary widely with predictions for the year 2020 ranging from $31 to $63.

"There is considerable uncertainty associated with the price projections," according to the DOE's Annual Energy Outlook 2006. This uncertainty is partially based on OPEC's production policies and political unrest in oil-producing countries. It's also based on uncertainty about how quickly developing countries such as India and China will expand their oil consumption, increasing worldwide demand.

Best practices for conserving electricity

The U.S. Department of Energy expects the cost of electricity to follow the same pattern as the cost of oil over the next two decades. Prices are forecast to drop from their recent spikes and then to increase gradually.

The forecast assumes demand for electricity will grow at a slower rate in coming years, in part because households and companies will invest in more efficient electrical equipment.

Experts agree that switching to energy-efficient light fixtures and heating, ventilating and air conditioning (HVAC) systems are among the best ways to reduce energy consumption in buildings.

New high-bay fluorescent lights use 40 to 50% less energy than the high intensity discharge (HID) lights found in many warehouses and industrial facilities, says Scott Jordan, a lighting expert at Square D (888-778-2733). In addition, the fluorescent lights don't require any warm-up time, he says, so they can be controlled with occupancy sensors and scheduled timers, further increasing their efficiency.

Subaru of America (856-488-8500) is taking advantage of this technology with "tremendous results," says Neil Samuels, national parts distribution manager. The new T5 fluorescent lights in Subaru's parts warehouses are extremely efficient, he says, and they operate on occupancy sensors, so they turn off when no one is in the aisle.

Subaru is gaining efficiencies in its HVAC system by using large ceiling fans to circulate air in its warehouses. "After installing the fans, we were able to just turn off a lot of our heating units," says Samuels. The payback period on the fans was less than eight months, he says.

Another way to save energy in HVAC systems—and in all motorized equipment—is to install energy-efficient motors. Premium efficiency motors may cost more than standard motors, says John Malinowski of Baldor (479-646-4711), but they're a better investment.

"When you look at the lifecycle cost of a motor, only 2% is the purchase price," he says. "The majority of the cost is from the energy to operate it."

Further efficiencies can be gained in HVAC systems, says Ivan Spronk of Schneider Electric (847-397-2600), by installing variable frequency drives (VFDs) to run motors at lower speeds on days when less heating or cooling is needed.

Energy efficiency Step 1: Be aware

Experts and end-users agree visibility and awareness are essential building blocks in any energy efficiency initiative.

"The first step is always making things more visible," says Larry Lapide, who conducts supply chain research at MIT. He suggests breaking out transportation costs at every step in the supply chain. While measuring the total amount of oil consumed in the manufacturing and distribution process is difficult, he says, "these are things we need to start to understand."

"Metrics are critical," agrees Brice Russell, senior vice president of supply chain for Masterfoods USA. The first step in Masterfoods' plan to reduce oil consumption, he says, was to implement a transportation management system that helped the company measure and then restructure driving routes.

Saving electricity starts with understanding a facility's electricity use, says Roger Ebbage of the Northwest Energy Education Institute (541-463-3977). He suggests compiling three year's worth of energy bills and comparing them month-by-month to identify spikes in consumption. Knowing where the spikes are, he says, is the first step to identifying their causes and possibly eliminating or reducing them.

"The entire goal of our first year was just to measure everything we did," says Neil Samuels, national parts distribution manager for Subaru of America, who is overseeing a plan to reduce energy use in Subaru's warehouses. Today, Samuels continues to track energy use in his facilities to measure progress on Subaru's next goal—to reduce annual electricity consumption by 5%.

Once management commits to improving energy efficiency and begins measuring energy consumption, the next step, according to Ebbage, is to spread awareness to the rest of the company. Saving energy involves changes in equipment and changes in human behavior, he says, and people won't change their energy habits until they know it's a priority.

Sharing energy efficiency goals with employees can have another benefit, says Craig Sieben of Sieben Energy Associates (312-899-1000). Some of the best energy-saving ideas come from employees, he says. "Survey your workers," says Sieben, "Ask them: 'What seems obvious to you guys? How can we be saving?'"