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

26 05 2011

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

24 05 2011

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.





Wood Transportation Fuels: Study Finds 11-Year Gap Between Announced Production and Viability of Technologies

19 05 2011

Our team just published a study with the Schiamberg Group that evaluates the wood-based transportation fuel sector in the United States.  The study builds on Forisk’s tracking and screening of all operating and announced wood-using bioenergy projects in the US (453 projects as of April 28, 2011; click here for summary).  While wood pellet and wood-to-electricity projects use established technologies proven at commercial scale, wood biofuel projects continue to face major technological, feedstock and policy challenges.  That said, there is a wide range of technologies and business models in development in the wood transportation fuels sector.

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.   The map shows all projects by location and size covered in the study.

Location of Operating and Announced Liquid Fuel Projects in US

These projects seek to convert wood to fuels including ethanol, butanol, diesel, gasoline, and jet fuel.  Projects producing drop-in fuels appear to have superior potential for investors.   However, major technical hurdles will likely disrupt commercialization for most technologies under development.

While the study finds an 11 year gap on average between estimated technology viability and firm announcements, it highlights promising approaches.   This includes the gasification technology under development by firms like Rentech and ClearFuels for diesel and/or jet fuel. INEOS New Planet, Rappaport Energy and Coskata, and Kior are pursuing innovative approaches using gasification and microbes, and catalytic fast pyrolysis.

For more information about this study, please click here.





Timber REITs: Weyerhaeuser Timber Segment Positioned to Outperform South-wide Average

16 05 2011

Two-thirds of the nearly 6.2 million acres that Weyerhaeuser (WY) owns and leases in the United States are located in the South.  Our Equity Research team matched WY’s timberland acres to Forisk’s state-by-state forecast of stumpage prices and wood demand to assess the revenue growth potential for the next five years from WY’s timber operations in the US South.

Forisk forecasts state-specific pine sawtimber and pulpwood prices in the South for eleven states.  These forecasts use statistical models that establish relationships between stumpage prices and the state-specific demand for timber relative to other states.  These relationships allow each state to individually “express” its price relationship to changes in, for example, sawtimber demand (driven primarily by the housing markets) over time.

According to our models, the top five states in the US South in terms of demand growth for 2011 are Mississippi, Louisiana, Alabama, Tennessee and Arkansas. Approximately three million acres, or 74% of WY’s southern timberlands, are located in four out of five of these high growth markets.  Since these markets are expected to outperform the other Southern states with respect to demand growth, this positions WY’s timber business to outperform the South-wide average assuming any strengthening in housing and lumber markets.

During the housing downturn, WY deferred its harvest substantially and plans to increase harvest by approximately 10% this year and 70% from the current levels over the next 10 years.





Public Timber REITs Report Mixed Results in First Quarter of 2011

1 05 2011

Between April 25th and April 29th, all four public timberland-owning REITs reported their Q1 2011 financial performance.  Three of the four firms reported earnings per share below Wall Street consensus expectations:

Overall, results continue to reflect the US housing downturn and, on a firm-by-firm basis, special items and substantive performance by non-timber business segments.  Neena Mishra, Director of Equity Research, further summarizes results by firm:

On April 29, Weyerhaeuser (WY) reported Q1 2011 net earnings at $99 million or $0.18 per diluted share. Excluding the after-tax gain on the sale of non-strategic timberlands, we arrive at operating earnings of $3 million or $0.00 per share, compared with a $0.15 per share consensus estimate. Timberland earnings grew $33 million with higher log export demand in the West. While Japan remains WY’s largest export market (70% of export volume); China’s share of WY’s exports rose from 7% to 24% over the past year.  Wood Products’ loss shrunk from $85 million in Q4 2010 to $36 million, but Cellulose Fibers reported lower earnings due to higher costs and lower productivity. Real Estate lost $1 million, versus earnings of $33 million last quarter, as single-family home sales declined 40%.

On April 25, Plum Creek (PCL) reported Q1 2011 earnings at $0.23 per share, one cent short of consensus estimates. Northern Resources reported a $7 million profit, $3 million higher than last quarter, driven by higher sawlog prices in the Northwest, and seasonally higher hardwood harvest volumes in the Northeast. Southern Resources reported operating profits of $19 million, down $9 million from Q4, due to lower harvest volumes and sawlog prices. Real Estate earned $38 million and Manufacturing earned $4 million. WY expects harvest volumes of 15 to 16 million tons in 2011. Management maintained earnings expectation for FY 2011 at $1.25 to $1.45 per share.

On April 26, Rayonier (RYN) reported Q1 2011 net income at $58 million, or $0.70 per share, 12 cents ahead of consensus estimates, primarily driven by strong global demand in Performance Fibers. Resource operating income of $11 million was $3 million higher than the prior year quarter as softwood prices in the North and New Zealand increased due to strong Asian demand. Northern softwood log prices rose 45% from the prior year period, more than offsetting lower sales in the Atlantic.  Real Estate operating income of $7 million was $10 million lower, mainly due to reduced non-strategic timberland sales. Performance Fibers operating income of $76 million was $31 million higher due to increased volumes and prices. RYN now expects FY 2011 earnings at $2.85 to $3.10 per share, up from $2.50 to $2.70 per share. Harvest volumes are expected to increase about 33% in the North, while Atlantic and Gulf Region volumes are expected to remain flat, over the next 10-year period.

Potlatch (PCH) also reported its Q1 2011 results on April 26. Earnings came in at $7.7 million, or $0.19 per diluted share. Excluding special items, we arrive at operating earnings of $ 0.28 per share, two cents short of the consensus. Northern Resource reported improved log volumes and pricing by 12% and 16%, respectively; while pulpwood volumes declined 14%, pricing rose 4%. Southern Resource log volumes and pricing improved 4% and 1%, respectively, while pulpwood volumes were up 4% year-over-year, prices were down 10%. Real Estate reported revenues of $1 million and Wood Products had an operating income of $2.9 million. RYN maintained its harvest outlook of 4.2 million tons for FY 2011.

Looking forward, recently released housing data points to weaker market conditions than previously expected. Higher fuel prices will also impact results this year. Increased Chinese demand for wood continues to be a big story: though relatively small based on volumes, it has led to rising log prices in the West for both export and domestic logs. Increased demand for logs and wood products from Japan are expected in due course. We remain positive on the longer term prospects for these firms, as once housing markets return these companies will benefit from increased harvest volumes and improved mix.