What Can Marching Bands Teach Us About Tracking Wood Demand and Timber Markets?

When tracking wood demand and timber markets, we look not only to the past and to the future for guidance, but also to the side – peripherally – to gauge performance across markets and sectors.  Heather Clark, our Customer Relations specialist and a former member of the UGA Red Coats Marching band, shared a useful analogy.  In a marching band, peripheral awareness is called “dressing the line,” and it serves to maintain formation and, ultimately, performance.  What can we learn from looking through the corners of our eyes at trends across wood markets over the past few months?

Wood Demand: Pine sawtimber demand declined ~1% across the South, primarily driven by curtailments at plywood mills. While demand declined less than expected, pine sawtimber prices, according to Timber Mart-South, declined 5.1%, more than expected. Dry weather and selling by timberland owners eager for cash flows may have pushed prices to new lows. Pine pulpwood demand increased 1.7% in the South and demand for hardwood pulpwood held steady in Q3 2011; stumpage prices for both products declined.  We continue to monitor softwood lumber and pulp prices, and the proposed lower design values for SYP lumber.

Wood Bioenergy Markets:  Industrial pellets for export to European utilities lead all bioenergy activities. For example, F.E. Wood & Sons plans to build a 300,000 ton/year pellet plant in West Baldwin, ME. German Pellets plans to build a 500,000 metric ton/year pellet plant in Woodville, TX. Westervelt Renewable Energy held a groundbreaking ceremony at its 250,000 metric ton pellet plant site in Aliceville, AL in October.

Forest Finance:  As demand for pulpwood increases in select local markets, forestland owners have called to ask “when should I clearcut for pulpwood versus manage for sawtimber?”  We published research commissioned by NAFO that addresses this issue at a regional level (click here).  In February, I will detail the step-by-step financial analysis required to answer this question for specific timberland ownerships and markets as part of our Applied Forest Finance course on February 9, 2012 in Atlanta.  For more information, click here.

471 Operating and Announced Wood Bioenergy Projects in the United States

As of October 30, 2011, Wood Bioenergy US includes 471 wood-consuming, announced and operating bioenergy projects in the continental US.

• In total, these projects represent potential, incremental wood use of 135.9 million green tons/year by 2021.
• Based on Forisk analysis, projects representing only 73.0 million tons/year pass basic viability screening. Click here to download the free summary.

How does Forisk screen projects?  Amanda Lang, Managing Editor of Wood Bioenergy US, prepared the following “summary in one slide” to outline the process.  (For those interested in the complete history and methodology of the screening process, click here to access our 2010 bioenergy screening white paper.)

Forisk’s ongoing research includes this project-by-project screening to better understand how capital is being allocated in the energy and forest industries as it relates to markets for wood and timber.  Examples of project-specific updates from October include:

• F.E. Wood & Sons plans to build a 300,000 ton per year pellet plant in West Baldwin, ME. The plan is contingent upon signing contracts with pellet customers and the state of Maine restoring a key rail line.
• Enviva will supply wood chips to Dominion’s biomass conversions at the Hopewell and Southampton power stations in Virginia. The 50 MW power stations are planned to begin operations in 2013.
• German Pellets plans to build a 500,000 metric ton per year pellet plant at a former chip mill site in Woodville, TX. The company plans to start operations by early 2012 and will export pellets to Europe.
• Liberty Green Renewables dropped plans for two 32 MW biomass plants in IN and asked the Department of Environmental Management to revoke air permits.
• ZeaChem signed an agreement with Pacific Ethanol to provide operating and accounting services to its Boardman, OR plant starting in the fourth quarter of 2011. The 250,000 gallon per year plant is planned to be operational in 2011 and is located adjacent to the Pacific Ethanol Columbia plant.

To purchase the subscription version of Wood Bioenergy US, including the full project list, please click here to visit the Forisk Store.

Woody Biomass as a Forest Product

What are the wood supply and timber market implications from emerging bioenergy demand?  We just published a white paper on this topic commissioned by the National Alliance of Forest Owners (NAFO).  The research was motivated by concerns about potential impacts of wood bioenergy markets on the established forest products industry, on forest management decisions, and on the environment in the US.

We examined how the current forest industry evolved over time and the impact of new market entrants. Key findings include:

• From 1999 to 2009, paper and paperboard production declined by 19% as the digital age and falling economy reduced paper consumption. As the paper industry declined, OSB and particleboard plants expanded, which use the same type of raw materials as pulp and paper mills. Increases in wood use by OSB plants in the 2000s partially offset decreased wood use by the pulp and paper sector.
• Total forest growing stock on timberlands has increased in the United States. Despite timber market expansion for paper and lumber markets in the 1990s and the growth of a new industry (OSB), the forest products industry did not deplete raw material supplies. For example, total forest growth net of removals increased by 101% from 1986–2006 in the South. Softwood growth net of removals on private timberlands in the South increased by 97% from 2006-2009. Recent increases in net growth in the South are due primarily to declining markets for forest products since 2005.
• There is insufficient evidence to suggest a regional or national shift in pulpwood markets, especially given the modest outlook for the pulp and paper sector for the next 10 years. Given the expected lower levels of wood use by the pulp and paper sector, some portion of the pulpwood supply will likely be available for bioenergy uses, assuming sufficiently robust market prices.

We also analyzed how much woody biomass markets in the South must evolve to affect landowner decisions with respect to harvest rotations. Forecasted pine pulpwood prices in the South in 2016 would have to increase from $11.47 per ton to higher than chip-n-saw prices of $17.09 per ton for landowners to be economically indifferent between a pulpwood-dominated forest and a sawtimber-dominated forest. Across the South, bioenergy demand would have to increase 435% by 2016, from an expected 22 million green tons a year to 120 million green tons per year, for pine pulpwood prices to reach $17.09/ton. Biomass energy wood use will have to be high enough for a sustained period to maintain high pine pulpwood prices to cause a shift in landowner behavior. At the same time, competing higher-valued product prices would have to remain at prices low enough to incent switching from pulpwood to sawtimber rotations. Once established, these prices would have to remain economically feasible for over 23 years to incent multiple pulpwood rotations on the same property. Overall, the analysis suggests that a significant shift from sawtimber to pulpwood rotations in the South is highly improbable. 

To download and read the complete study, click here.

Wood Bioenergy: What is the “Biogenic Carbon Cycle”?

Earlier this year, the EPA deferred a final decision on how to regulate greenhouse gas (GHG) emissions from wood-using bioenergy facilities.  Why?  EPA wants to study further the research on carbon accounting and the carbon neutrality of biomass.  (While clearly an important topic for additional study, the research posted on CNN this morning about the female orgasm looks more interesting…..I’m just saying).

The idea that forest biomass is carbon neutral when used for energy stems from its natural role in the biogenic carbon cycle.  What’s that?  In the biogenic carbon cycle, plants constantly remove carbon from the atmosphere through photosynthesis and emit carbon into the atmosphere through natural processes, including respiration and decay. In contrast, fossil fuels, such as coal, oil, and natural gas, take millions of years to form and cannot replenish themselves in this same way in short time periods.

When a wood bioenergy plant burns biomass to make electricity, it releases the carbon stored in the biomass into the atmosphere. Proponents of the carbon neutrality of forest biomass and bioenergy argue that the same carbon that was removed from the atmosphere by the tree’s growth is being released as the biomass burns. Because the carbon removed by the living tree is the same as the carbon released by burning the biomass from the tree, forest biomass and bioenergy is said to be “carbon neutral.”

What are the implications?  If, ultimately, the EPA decides that biomass energy is not inherently carbon-neutral, then biomass power could struggle to grow as an energy source. If biomass is not deemed carbon neutral, then perhaps one could question its renewability.  If biomass is no longer considered renewable and cannot be used to meet renewable portfolio standards, then few incentives exist for producers to generate biomass for power.  Regardless, further study of this, can, as a former professor of my Dad’s said, “titillate our lascivious desires creating a symbiosis of emotion.”  Or not.

Forisk Adds Cogeneration, Thermal Facilities and Urban Wood Use to Tracking of Bioenergy Sector

This year, Amanda Lang, our Director of Wood Bioenergy Research, has led efforts to enhance the investment-relevant insights from Wood Bioenergy US, the Forisk publication that tracks all announced and operating wood-using bioenergy projects in the US.  As of the September 2011 issue, key additions include:

1. Forisk separated cogeneration and thermal project types.  Previously, these projects were included in the electricity category.
2. Urban wood was added as a feedstock type alongside forest materials and mill residues.

Wood Bioenergy US now tracks 467 projects that could consume 134.1 million tons of wood per year by 2021.  However, Forisk screening indicates 48% of this demand fails basic tests of investment and operational viability. Forisk’s improvements help timberland investors, energy developers and forest industry managers to assess project viability based on technology and project development milestones. [Click here for the free September summary.]

Cogeneration is the simultaneous production of electricity and useful heat from the same fuel source. Sixty projects in the database qualify as cogeneration and could consume 15 million green tons of wood by 2021. Twenty small-scale thermal projects, that generate steam or heat, could consume less than one million green tons per year. Urban wood feedstocks represent 8% of the 134.1 million green tons of wood that could be consumed by bioenergy projects by 2021.

“We want to realistically capture wood biomass market development,” said Amanda Lang. “These changes make our bioenergy project tracking more accurate. For example, cogeneration projects generate not only electricity, but also heat energy that can be used to power manufacturing facilities or heat buildings. The economics and efficiencies of cogeneration projects differ from pure electricity plants; by separating cogeneration projects, we can more accurately describe the bioenergy end-markets for wood.”

Forisk now tracks 3,196 wood-using locations in the United States, providing the most current, ongoing analysis of US wood demand and forest industry health available.  Click here for more information.

Wood Bioenergy Update: Project Count Up; Viable Wood Volume Down

According to the August edition of Wood Bioenergy US, the number of announced and operating wood-consuming bioenergy projects in the United States increased from 457 in July to 462 in August.  However, the volume of total wood use that passed Forisk project screening fell from 53% to 52%.  Highlights as of August 30, 2011 include:

• In total, these projects represent potential, incremental wood use of 133.9 million green tons/year by 2021.
• Based on Forisk analysis, projects representing only 69.1 million tons/year pass basic viability screening.
• Enviva announced plans for a new 400,000 ton pellet facility in Northampton County, NC.
• Fram Renewable Fuels and Telfair Forest Products will build a 125,000 ton pellet plant in Lumber City, GA.
• Green Power Solutions, a partnership between Beasley Forest Products and Land Care Services, plans to build a 56 MW biomass cogeneration plant in Laurens County, GA.
• The $75 million federal loan guarantee for INEOS New Planet BioEnergy was finalized in August. The firm is building an 8 million gallon per year cellulosic ethanol plant in Vero Beach, FL.
• Envergent Technologies, a Honeywell Company, began construction of a demonstration scale plant to convert cellulosic material into transportation fuels in Kapolei, HI.

To download the complete free August summary of Wood Bioenergy US, click here.

To purchase the subscription version of Wood Bioenergy US, including the full project list, please click here to visit the Forisk Store.

Wood Bioenergy: Project Count Up, but Viable Volumes Decline in June

The June issue of Wood Bioenergy US indicates that, as of June 28, 2011:

• The continental US has 457 wood-consuming, announced and operating bioenergy projects (up from 453 in May).
• In total, these projects represent potential, incremental wood use of 130.5 million green tons/year by 2021.
• Based on Forisk analysis, projects representing only 68.7 million tons/year pass basic viability screening.

These results represent a net decline from the estimated, viable wood consumption of 71.1 million tons/year reported in the May issue.  Eight fewer projects passed Forisk’s screening methodology in June than in May.  The biggest factor: we modified the status screen to exclude projects that are on hold or shut down, even if the project uses a proven technology and has made significant progress towards operability. “On hold” indicates that a project is at a standstill for an unspecified amount of time.  Click here to download the complete free summary.

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Again, the project-by-project results confirmed analysis of the US biofuels market published last month by Forisk Consulting and the Schiamberg Group.  KiOR’s lackluster IPO  and falling oil prices harden doubts about the short-term commercial prospects of investments in the wood-based liquid transportation fuel sector in the continental United States. To learn more about the study, click here.

Wood Biofuels: KiOR Doubles Size of IPO; Investors Should Not Expect Speedy Payback (if any)

Last week, Pasadena, Texas-based KiOR filed with US regulators to increase the size of its initial public offering to $200 million, doubling its initial filing of $100 million in April (KiOR doubles size of IPO, Reuters, June 1, 2011).  KiOR plans to produce crude oil using non-food biomass types such as wood chips and switch grass.  In addition, KiOR was included in a study published last month – Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies - that includes the status of 36 cellulosic biofuel projects in the US, commercialization timelines for 12 technology approaches, and implications for bioenergy and timberland investors.   The list shows all projects covered in the study.

For each technology, the study ranks the level of technical risk, provides a commercialization timeline, and estimates the expected yields at commercial scale. The results indicate that major technical hurdles need to be solved and will delay or disrupt commercialization for most of the technologies under development.

What were the implications for firms such as KiOR?  KiOR currently operates a pilot plant in Pasadena. The firm is developing commercial scale biorefineries to make gasoline and diesel blendstocks from wood.  Its initial-scale plant in Columbus, Mississippi is under construction. KiOR has secured three off-take agreements for fuel produced at its Columbus location with Hunt Refining Company, Catchlight Energy, and FedEx Ground Services. The company also plans commercial scale facilities in Mississippi (likely in Newton and Bude), Georgia, and Texas. KiOR received a $75 million interest-free loan from the state of Mississippi to build the Columbus plant. KiOR received a term sheet for a DOE loan guarantee for $1 billion announced in February 2011. As of May, the loan guarantee was in the due diligence process and requires that KiOR begin construction by September 30, 2011.

With both strong public and private sector backing, KiOR has the potential to be a successful biofuels company. However, our technology assessment indicates a high level of technology risk and that commercialization could be at least eight years into the future. In addition, the firm produces end products that require additional refining; these are not drop-in fuels.  Finally, the increased IPO simply gets KiOR closer to the capital it must have to give the commercial scale facilities any chance of completion, regardless of whether or not the technology functions and yields materialize as planned.

Relative to other firms in the study, KiOR has a shorter technology gap as the overall results find an 11 year gap on average between estimated technology viability and firm announcements.

For more information about this study, please click here.

Wood Bioenergy: Projected Demand Exceeds 70 Million Tons by 2021; Detailed Study Clarifies Biofuels Projects for Investors

The May issue of Wood Bioenergy US indicates that, as of May 25, 2011:

• The continental US has 453 wood-consuming, announced and operating bioenergy projects.
• In total, these projects represent potential, incremental wood use of 130 million green tons/year by 2021.
• Based on Forisk analysis, projects representing only 71.1 million tons/year pass basic viability screening.

This is the first time projected demand has exceeded 70 million green tons within ten years.  In total, the pass rate of projects is 65%.  Of the 453 total projects evaluated, 54% are associated with cogeneration and/or wood-to-electricity.  The number of liquid fuel projects declined from 36 to 34 since last month.  Click here to download the free summary.

The decline in wood biofuels projects is consistent with the results of the study we published with the Schiamberg Group – Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies.  This research includes the status of 36 cellulosic biofuel projects, estimated commercialization timelines for 12 technology approaches, and implications for bioenergy and timberland investors in the US.   How was the study conducted?

Each technology process was evaluated based on its ability to produce at commercial scale and its estimated yields.  Many of these estimates came from firms, which we compared to proven pilot and demo scale projects.  Our experience in benchmarking information from private firms is that it can prove unreliable and overly optimistic.  Range Fuels is an example of a project we’ve covered since 2009 using similar criteria, and it basically played out as expected based on the criteria used.

For the liquid fuels study, those two elements, ability to produce at commercial scale and estimated yields, can be estimated given existing projects today and provide the basis for a continuum of both technologies and projects.   The key difference we find in comparing notes with private firms is that a successful pilot project is deemed “success” while that would be insufficient from our view.  The critical elements are ability to produce at commercial scale and yields.

For more information about this study, please click here.

Wood Bioenergy: Impacts on Timberland Investors from Biofuels Projects

Questions and comments regarding a study we published with the Schiamberg Group have focused on (1) why a given wood-using transportation fuel project is different or “special” and (2) potential impacts to timberland investors and managers.   The study – Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies - includes the status of 36 cellulosic biofuel projects, estimated commercialization timelines for 12 technology approaches, and implications for bioenergy and timberland investors in the US.   These projects seek to convert wood to fuels including ethanol, butanol, diesel, gasoline, and jet fuel.

With respect to the exact and extraordinary circumstances associated with each wood biofuels project, we defer to the late Senator Daniel Patrick Moynihan, who said “Everyone is entitled to his own opinion, but not his own facts.”  Our research focused on verifiable, third-party sources to confirm the current status and commercial viability of known projects.  While our team, as forestry “enthusiasts”, would love to see growing demand for wood and the associated incentives to increase investments in forestry and forest health, a project cannot be considered viable until the relevant technology has been proven at commercial scale.   We encourage dialogue and will update our analysis as new facts present themselves.

For timberland investors, the overall, potential impacts from this sector appear modest, though specific local markets could benefit within the next ten years.  On a national scale, demonstration and commercial projects could use up to 8.8 million dry tons of wood per year by 2030. According to project announcements, this total wood demand would occur by 2018. A commercialization scenario projects 8.8 million dry tons of wood per year 11 years later in 2029. In other words, we estimate an 11 year lag between when the projects expect to operate and when our technology analysis indicates the technology could overcome hurdles and be viable at commercial scale.  This figure from the study illustrates the story:

The study models and graphs data for all US regions: the US South dominates the potential incremental wood use from the transportation fuel projects evaluated.  At the most basic unit of analysis, the local wood basket circling each liquid fuel project, the population of timberland owners and investors with significant exposure to potential increases in raw material demand from announced projects would include those with timberland investments in markets that include lower risk, higher potential projects.  These markets include Alabama; California; Michigan; Mississippi; and Tennessee.

While some projects show particular promise and advantages, our general results indicate that major technical hurdles will likely disrupt commercialization for most technologies under development.  For more information about this study, please click here.