Higher Oil Prices: A Good Thing For Manufacturers?

With the price of oil at or near all-time highs, manufacturers are feeling the pinch. But the news isn't all bad: higher prices can lead to unforeseen benefits.

As the price of oil reaches record highs, and prices at the pump hover above $3 a gallon, drivers and manufacturers alike feel the strain on their wallets.

For drivers, high oil prices are just another reason to dislike their daily commute. For manufacturers, however, the price of oil can mean an overhaul of operations.

And that can be a good thing.

From increased efficiency to energy alternatives, the dark cloud of news following oil prices around may have a silver lining for the manufacturing industry.

For the aerospace industry, oil prices have helped sales of helicopters reach record high levels. In a 2005 review and 2006 forecast, Aerospace Research Center Director David. H. Napier notes that civil helicopter sales have gone from $515 million to $750 million.

According to Napier, the price of oil increases activity for helicopter manufacturers. Since most offshore oil rigs are only accessible by helicopter, the greater the extent of oil rig exploration, the greater the demand for helicopters to carry personnel to and from the rigs.

For commercial aircraft, Napier cites the new composite materials as a way to make the airplanes lighter and thus more fuel efficient. The use of composites has an added maintenance bonus; since composite materials can be used for complete sections of aircraft, fewer joints are needed, which means fewer chances for corrosion to occur. Boeing’s new 787 Dreamliner will be constructed from carbon fiber-reinforced plastic composites. An aluminum wing box has already been constructed, with testing to be conducted soon.

And then there are trucks. Whether transporting equipment and materials or hauling away garbage, trucks play an enormous role in manufacturing, but keeping those trucks on the road while making a profit is getting increasingly difficult. With the price at the pumps only getting higher, companies need to adjust their strategy. For some, it may include adding a fuel surcharge, but others will turn to technology.

Craig Jooste, Corporate Operations Manager for 1-800-GOT-JUNK, the world’s largest junk removal service, says the company has been researching aluminum dump boxes instead of the steel boxes that are currently in use. The aluminum boxes are 1500 pounds lighter than the steel, thus reducing truck weight and fuel consumption. The research is in the very early stages and not yet conclusive, but so far, based on seven weeks of data, the new boxes save about 6.3 cents per mile.

Jooste also uses GPS to find and direct the closest truck to the next job location. This reduces the distance the trucks travel and the amount of fuel used. 

Alcoa has also introduced some new aluminum products. The aluminum wheels that it unveiled recently at the Efficient Diesel Workshop boast a possible 3 to 7 percent fuel savings. The 14-inch wide based aluminum wheels can save 300 pounds per axel compared to dual steel wheels and tires.

Improving efficiency can help offset the high energy costs. When combined with reduction of oil consumption, it can also reduce greenhouse gases, such as carbon dioxide, something that has been monitored since the Kyoto Protocol was drawn up in 1997.

True, most folks wouldn’t go so far as to say higher oil prices are a good thing (unless they own an oil company), but they recognize that there may be unforeseen benefits.

“There are increases in business costs and consumers have less disposable income but there is also an increase in energy efficiency and it encourages less consumption.” said Napier. And for manufacturers, it can mean coming up with new products that use less energy.

Currently, the FutureGen Alliance is working towards establishing the world’s first coal-fueled zero emissions power plant. Alcoa is planning four cogeneration plants for Australia that will produce electricity and steam from gas. In one form or another, all companies are adjusting to higher energy costs.

“We need to strive to do things more efficiently and with a passion to work smarter,” notes Jooste. “High costs do affect our business model but it forces all of us to take a long hard look at how we do business and find the perfect solution - environmentally friendly and cost effective at the same time.”

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