A food production operation is often tasked to maintain high product quality while simultaneously reducing production costs. Add to it the limited energy infrastructure in certain regions and this is a daunting challenge.
Energy is typically viewed as peripheral to the business therefore projects have an uphill fight for capital and attention. But this should be one of the first places to look for reducing costs and improving productivity and profits.
Pioneer LNG was faced with this issue when looking at a plant on the Eastern Shore of Maryland. They were forced to use propane as their primary source of fuel and swings in the propane market on an annual basis could fluctuate their energy budget as high as 20% year on year.
This means they had very limited control of their energy budget. They were looking for price certainty and reduced energy cost. Pioneer proposed a five year contract that accomplished two things – budget certainty for the next 5 years and a reduction in their fuel costs by 22% compared to their lowest cost year.
The capital costs will be recovered less than one year. More importantly, their profit margin increased. See exact numbers below.
This was an easy decision considering the cost savings and budget certainty but where was this option before? LNG production and supply in Pennsylvania was not a viable option for off grid end users until the past two years. Most LNG was used for utility purposes, not production facilities.
The Marcellus Shale in the Pennsylvania region is thought to be the second largest natural gas supply in the world. For the first time, industry on the east Coast of the United States have the option to use a domestic fuel source that is abundant and produced in America.
The logistics have changed and industry that sits within a 500 mile radius of Pennsylvania production will benefit by utilizing LNG.
Liquefied Natural gas also brings ancillary benefits such as a reduction in NOx and Sox compared to propane and diesel fuel. It also reduces the cost of maintenance and down time for a plant.
LNG offers immediate savings and budget certainty in the extremely competitive food production industry. Outside of labor costs, this is the largest and most volatile portion of a business’s budget. Pioneer LNG can find solutions to reduce costs and improve your profit.
An eastern shore MD food processor came to Pioneer LNG to inquire about converting to LNG. Here is what our analysis concluded:
The annual propane volume was 560,000 gallons of propane. Because they need propane year round they pay a higher rate in winter and lower rate in summer as that is how the propane market generally trades. Dramatic Year on year price swings have occurred over past 5 years and this has made budgeting very difficult.
Food processing is a historically tight margin business and know all input costs is vital for profitability. The average cost of delivered in Propane for 2017 was $1.10. The average of propane to start 2018 is actually $1.25 but for purposes of this case study we will use 2017 numbers
Total 2017 energy costs = $616,000
By converting to LNG, this food processor will burn 616,000 gallons of LNG. The delivered cost of LNG is $.75 per gallon.
Total annual cost by converting to LNG is now $462,000.
Projected realized savings = $154,000
Projected Capital costs for this application is $150,000