Wood Biomass Market Realities Explode Waste Wood Myth

The emergence of new wood energy, pellet, and biofuel projects threatens disruption in woodbaskets, and has already visited scrambles on some regions - RISI's Wood Biomass Market Report

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Wood Biomass Market Realities Explode Waste Wood Myth

By William R. Perritt
Executive Editor, Wood Biomass Market Report

The emergence of new wood energy, pellet, and biofuel projects threatens disruption in woodbaskets, and has already visited scrambles on some regions. In the rush and excitement to develop North Americas largest renewable energy source, established low-grade wood consumers have not always responded positively to the appearance of new players.

Hungry for large volumes of wood, and frequently armed with government subsidies, the nascent operations have triggered wood price spikes and cross-grade competition in the tightest markets. The oft-repeated assumption that forests and sawmills are littered with waste wood , just waiting for a cheap home is proving largely erroneous.

Industry newcomers are finding pro forma wood cost projections dont hold up when a 500,000 or 1 million ton/year consumer starts piling down chips and bark. They are also finding established mills will fight with dollars to preserve wood supplier loyalty.

Recent and upcoming starts in the energy, pellet, and biofuels sectors will add a 37 million tons/year demand to wood markets in North America a number that is poised to jump quickly to 50 million tons. By region, new projects will pile on: 11.1 million tons in the South; 7.2 million tons in the Northeast; 4.1 million tons in the Lake States; 2.2 million tons in the West; 4.1 million tons in Western Canada; and 3 million tons in Eastern Canada.

Mixed reactions
The appearance of new wood biomass users continues to provoke mixed responses from forest product industry veterans, both hopeful and leery, as illustrated during the Forest
Resource Associations Appalachian Region meeting in Morgantown, WV.

Joel Cathey, a hardwood log buyer for Virginias Ontario Hardwood Co. sawmill, sees the new direction as a good thing, from both a market and public relations standpoint. Our industry has had a black eye for a long time, he pointed out. The positives could come from biomass. (The Appalachian Region has a projected 2 million tons new demand for the material.)

From a woodfiber consumer standpoint, Dan Evans of Weyerhaeuser in Pennsylvania said, We see increased competition for woodchips and sawdust, especially with grade lumber in decline, fewer sawmills, and fewer loggers. A proliferation of small-scale wood-fired thermal plants and strong pellet demand from Pennsylvanias manufacturers is already creating spot price increases and shortages, Evans added. So now we want to ramp up more low-grade consumption and what do we do?

One attendee responded, This may well be a good thing, but changes this dramatic will cause a huge increase in costs. A supplier member added, Some of us loggers dont have
the financial depth to invest in the (biomass processing) technology.

A West Virginia University analyst, Shawn Grushecky, agreed, Why would a logger invest in equipment before theres an actual market? Theres a lot of money spent on (mill) design, and not much on wood supply.

Jeff Herholdt, director of the West Virginia Division of Energy, reiterated the opportunities for wood biomass are solid with renewable energy portfolios adopted in most states. Those without, he said, are in a good position to export energy into states with credits to capitalize on the programs.

In West Virginias case, Herholdt added, wood biomass demand will pick up with development of coal-to-liquid facilities. One developer is looking at producing gasoline from coal, and could be taking wood as part of the input.

With wood less expensive per BTU than most fuels, FRA president Richard Lewis told the group that associated new fiber markets would force the industry to break old paradigms. One of those paradigms, he said, is the notion that the current industry owns the supply chain, and that is a myth. With biomass emerging, we can lose not only wood supply but procurement staffs as well.

Be at the table for fiber supply discussion, or you will be on the menu, Lewis warned. Folks in the traditional industry view biomass as a threat, and we cant afford to do that.

Boise calls foul

Recently, pulp and paper producer Boise, urged the US Dept. of Agriculture to consider the consequences of government subsidies to wood-based biomass energy projects (which is
the largest growth sector, promising almost 24 million tons/year of new wood demand by 2015). Boises regional manager of operations in Alabama, Rick Grant, addressed a hearing related to Farm Bill Renewable Energy Provisions that were approved by Congress this year.

My objective today is to draw attention to the unintended effects that government subsidization of biomass-based renewable energy initiatives, may have on the natural supply/demand balance of our nations raw wood materials, Grant said. Given this new competition, established industries not only contend with higher input costs for energy, chemicals, and freight, but also stand to be unfairly disadvantaged by competing with subsidized entities for vital biomass feedstock.

In light of alleged disparities between the pulp and the energy sectors, a presentation at the TAPPI International Bioenergy and Bioproducts Conference noted that out of 48 applications, only three pulp and paper projects won DOE funding.

Boise noted in the USDA hearing that approximately 65% of its energy use comes from renewable sources such as biomass, a rate that applies for the forest products industry in
general. The company reviewed the impacts of new biomass projects in key woodbaskets for its operations in Alabama, Louisiana and Minnesota.

In Minnesota, three pellet mills, a gasification plant, a biofuel cube facility and two energy-generating plants are under consideration within one to 260 miles of our International Falls mill, Grant told the hearing. He focused on $1 billion being provided under the Energy Title of the Farm Bill for grants and loans for new and retrofitted commercial scale biorefineries. The legislation requires evaluation of criteria, including whether applicants can show their projects will not have significant negative impacts on existing manufacturing plants.

We believe this determination is essential to avoid potential economic hardship on mill operations already using such fiber, Grant said. Wood products operations should be eligible for remuneration under the bill, he added. Our operations generate a significant amount of renewable energy in which woody biomass is a key feedstock, Grants presentation said. New bioenergy producers, bolstered by subsidies and incentives, could consume a disproportionate amount of fiber and consequently run up prices for chips and roundwood. We must ensure that the existing wood-consuming mills are given a fair opportunity for survival.

For more information on RISI's Wood Biomass Market Report please visit www.risiinfo.com/woodbiomass, or to find out more about our new study on wood demand and renewable energy markets in the USA, please visit us at www.risiinfo.com/biomass.

Additional Information

Web Site: http://www.risiinfo.com/woodbiomass

Category: Forestry>Supply

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