Wood Bioenergy: The Rise and Fall of Wood-Based Biofuels, Part II

20 07 2013

This post includes an excerpt of the feature article in the May/June/July edition of Wood Bioenergy US (WBUS) written by Brooks Mendell, Ashley Barfield, and Amanda Lang. It is the second part of a two part series on liquid biofuels.

Investors in wood-based biofuels must keep in mind how ethanol investments have generally lost their luster.  John Eligon and Matthew Wald of The New York Times summarized the struggle of hundreds of corn ethanol plants built throughout the U.S. Corn Belt with government subsidies and mandates (“Days of Promise Fade for Ethanol”, 3/16/13). According to the article, “thousands of barrels of ethanol now sit in storage because there is not enough gasoline in the market to blend it with…”

Regardless of the quality and status of individual technologies and plants in development, analysis of public firms active in the wood biofuels sector confirms how they continue to face extreme economic and market challenges.  First and foremost, ethanol-related production efforts operate in an over-supplied, low-demand market.  The U.S. is flush with excess ethanol production capacity and, thanks to blending walls and other logistic limitations, is holding the bag for a product with few customers.  This is economics 101.  Second, high production costs for wood biofuels, even as firms show progress and improve yields, actually can look worse on a relative basis as the prices for alternative fuels, such as natural gas, decline.  Through no fault of the U.S. biofuels sector, it remains subject to external benchmarks and exogenous forces that erode progress and diminish the attractiveness of wood biofuel investments.  Third, time works against wood biofuel projects in the U.S. when evaluating wood feedstock strategies and alternatives.  With an improving economy, demand for wood raw materials from traditional forest industry users such as building product manufacturers and pulp and paper producers is increasing.  In addition, wood bioenergy projects with existing markets and ready technology, such as wood pellet producers, are increasing production and investment in new capacity.  All of these factors push potential wood biofuels projects to the back of the line for securing woody feedstocks.   As a group, these firms have shrinking relevance to timberland owners and wood raw material competitors.

WBUS Market Update:  As of July 2013, WBUS counts 459 announced and operating wood bioenergy projects in the U.S. with total, potential wood use of 128.6 million tons per year by 2023.  Based on Forisk analysis, 296 projects representing potential wood use of 78.5 million tons per year pass basic viability screening.  To download the free WBUS summary, click here.