It is difficult to isolate the affect the increase in the cost of energy had on the manufacturing economy from 1998 to 2002, but it certainly tightened operating margins. For example, had the sector maintained the same level of natural gas use in 2002 as was used in 1998, the 42 percent increase in cost would have to have been absorbed. However, first use consumption of natural gas fell by 13 percent between 1998 and 2002. Still, the sector-wide expenditures on natural gas increased by nearly 30 percent--over $5.75 billion (nominal).

First Use Consumption of Energy

While there was in increase in average cost per unit for all of the major sources of energy used (see Figure 1), it was clearly the increase in the cost of natural gas that hit the sector the hardest. In terms of Btu for first use, natural gas stands out as the energy source used most widely used among manufacturing industries. Natural gas is a relatively low emission fuel and is an irreplaceable feedstock in several major chemical sub-industries.

The chemical industry is the largest user of natural gas within the manufacturing sector. Chemical manufacturing establishments used over two and a half times as much natural gas as establishments in the second largest user industry, petroleum and coal products. Other industries that consume significant quantities of natural gas include primary metals, paper, food, and nonmetallic minerals. These industries have traditionally been the heaviest users of energy in the manufacturing sector.

Energy Consumed as Fuel

Other than liquefied petroleum gasses and natural gas liquids (LPG/NGL), fuel consumption by energy type for the manufacturing sector in 1998 and 2002 is not substantially different than what is found in Figure 2 above. The chemicals industry makes extensive use of natural gas as a feedstock. Thus, the percent of natural gas utilized by the chemicals industry is higher in Figure 3 (35 percent) than in Figure 5 (28 percent).

Nonfuel Use of Energy

A few manufacturing industries use a large amount of combustible energy sources as a feedstock in their production processes.

Nearly one hundred percent of coal used as a feedstock has traditionally been used in iron and steel mills (NAICS 331111). This industry makes and uses coke (made from coal) in blast furnaces. In 2002, however, 40 percent of the total coal used as a feedstock was used in other industries. This is in part due to the recent emergence of synfuel plants, which are part of the petroleum and coal industry. Synfuel plants apply a chemical treatment to coal and resell it.

The nitrogenous fertilizer industry (NAICS 32531) uses the most natural gas as a feedstock, followed by other basic organic chemicals (NAICS 325199), plastics materials and resins (NAICS 325211), and iron and steel mills (331111). In 1998 more natural gas was used for nonfuel purposes than in 2002. However, there were no major changes in the percent shares that each of these industries accounted for of the total natural gas for nonfuel purposes.

There was a substantial increase from 1998 to 2002 in LPG/NGL use as a feedstock. The total rose over 1.2 quadrillion Btu. Most of the use occurred in the plastics materials and resins group (NAICS 325211). Other big users of LPG/NGL include petrochemicals (NAICS 325110) and other basic organic chemicals (NAICS 325199). Note: It is suspected that instead of this being a completely meaningful increase, LPG/NGL use as a feedstock was underreported in the chemical industry prior to the 2002 MECS.

End Uses of Energy in Manufacturing

As in previous years, manufacturers allocated their uses of major purchased fuels to end-uses. The end-uses are subsets of boiler fuel, direct process use, and direct nonprocess use. Manufacturers were not asked to estimate end-use of less generally used energy sources such as major byproducts, wood, and waste. The amount of fuel for which end-uses were not allocated has not changed significantly since 1998 (35 percent in 1998 and 37 percent in 2002).

The pattern of end-uses for the generally used fuels in the table above has remained remarkably stable over the years. In 2002, 30 percent of total fuel for end-use was used in boilers, 56 percent was used directly in the manufacturing process, 11 percent was used in direct nonprocess use, and 3 percent was not reported. Each of the percentages for 1998 is less than 2 percent different from those given for 2002.

Byproducts in Fuel Consumption

The primary metals industry (NAICS 331) declined in its share of byproduct use relative to other industries between 1998 and 2002. Almost all of this byproduct use was coke oven and blast furnace gas in the Iron and steel industry. This decline mirrored an overall decline in production in the steel industry, as well as a continuing shift away from the integrated steel mill into the electric arc furnace.

The chemical industry continued to grow in the use of waste gas for fuel -- 416 trillion Btu in 1998 to 483 trillion Btu in 2002. Waste gas in 2002 accounted for 12.8 percent of the total fuel used in the chemical industry.

Table 2. Selected Byproducts in Fuel Consumption, 1998 and 2002 (Trillion Btu)
	1998	2002
Total	4,538	4,267
Blast Furnace/Coke Oven Gases	369	297
Waste Gas, Still Gas	1,837	1,887
Petroleum Coke	703	679
Pulping Liquor/Black Liquor	903	820
Wood Chips/Bark	684	542
Oils, Tars, Waste Material	43	41
Source: Energy Information Administration, Manufacturing Energy Consumption Survey -- Table 3.5: Byproducts in Fuel Consumption by Manufacturing Industry and Region, 1998, and 2002.

While fuel consumption declined between 1998 and 2002, the proportion of fuel use that the byproducts listed in Table 2 account for was unchanged from 1998 to 2002. Waste gas, including refinery still gas, was again the most widely used of the selected byproducts. The petroleum and coal group (NAICS 324) was the primary user of waste gas (1,396 trillion Btu) and petroleum coke (565 trillion Btu) in 2002.

Wood-Related Products in Fuel Consumption

The use of wood related products dropped between 1998 and 2002, but its percent share in the mix of fuel used in manufacturing remained steady. Pulping or black liquor made up 35 percent of the total fuel used in the paper industry (NAICS 322) in 2002. Biomass made up about 4 percent of the total fuel use in manufacturing in 2002. These percentages were not more than a percent or two different in 1998.

Total Consumption and Onsite Generation of Electricity

Manufacturing as a whole is both a major user and producer of electricity. Although total consumption of electricity did decline approximately 6 percent, there appeared to be little change in the make-up of manufacturing electricity use and production between 1998 and 2002. In fact, the relative shares of electricity consumption among the three component parts, purchases, transfers in, and the net of generation minus sales and transfers out are identical, according to the MECS data (87, 1, and 11 percent in 2002, respectively). Similarly, three industry subsectors, chemicals, primary metals, and paper, accounted for 48 percent of total consumption of electricity, approximately the same share as in 1998.

Electricity Purchases

Although total electricity consumption has shown stability, restructured energy markets have had an effect on choices made by electricity purchasers. While it is difficult to know whether the changes were due to growth in access to nonutility suppliers or a greater interest in them by manufacturers, clearly more of the electricity purchases were from sources other than the manufacturer’s local utility.

Figure 14 shows those changes. The overall amount of electricity purchased from nonutility suppliers² increased from 8.7 percent of the total in 1998 to 12.4 percent in 2002. Not only did the share of total purchases change, but the amount of nonutility purchases of electricity by manufacturers actually increased by 27 billion kilowatthours, even though total purchases of electricity declined.

Three industry subsectors, chemicals, paper, and petroleum and coal products, accounted for 89 percent of the total onsite generation less sales and transfers out. Of the total onsite generation in manufacturing in 2002 (134,268 million kilowatthours), 93 percent was from a cogeneration or combined heat and power (CHP) process, 2 percent was from a renewable energy source (hydropower, wind, solar, or geothermal), and 6 percent was from other processes including conventional fossil fuel generators, often used as backup. That breakdown is almost identical to what was found in 1998.

Larger establishments are responsible for producing most of the on-site generation. In examining manufacturing establishments by employment size categories, 73 percent of the total generation came from establishments with 500 or more employees. According to the U.S. Census Bureau's Economic Census—Manufacturing³, only 2 percent of manufacturing establishments in the MECS population⁴ have as many as 500 employees. Approximately 90 percent of the generation is in establishments with 250 or more employees, which account for 5 percent of the MECS population. From these results, it is clear that for the most part only the largest establishments will find it economically feasible to generate electricity.

Endnotes

¹ “Total” includes only energy sources listed in the column headings. It excludes fuel use of unallocated energy sources (6,248 trillion Btu in 1998 and 6,006 trillion Btu in 2002).

² These are brokers, marketers, independent power producers, cogenerators from other companies, marketing subsidiaries of other utilities, and any other entities that are not local utilities for a given establishment.

³ U.S. Department of Commerce, U.S. Census Bureau, 2002 Economic Census-Manufacturing, General Summary 2002, Washington, DC, October 2005, page 54.

⁴ The MECS population are those establishments that cover at least 97 percent of the total energy use in U.S. manufacturing. Only the smallest establishments are excluded. See U.S. Energy Information Administration, 2002 Manufacturing Energy Consumption Survey Methodology and Data Quality: Survey Design, Implementation, and Estimates (internet report), “Methodology” subsection.