Wood Pellet Production Situation Analysis

More than 4 million metric tons of new wood pellet production capacity are currently under construction throughout North America, over 3 million tons of which are scheduled to come on line this year, and 600,000 tons by spring. Such capacity growth is unprecedented in the North American pellet industry, which is comprised of some 160 facilities, with a total installed capacity of around 13 million metric tons. Not only will the capacity added this year grow the industry’s output  by nearly 25 percent in just one year, but facilities scheduled to come on line in 2015 will bring the two-year expansion closer to 33 percent. While unprecedented within the pellet sector, this kind of monumental growth is not without antecedent in the broader renewable energy sector. In 2007 and 2008, the ethanol industry grew from around 6.5 billion gallons of production capacity to over 9 billion gallons. By 2009, the industry had brought on line enough production capacity to achieve over 10 billion gallons of production in the industry’s history.


 
While growth in the ethanol industry’s construction capacity was characterized largely by the construction of scores of facilities with similar capacities, growth in the pellet sector is largely coming from the construction of a much smaller fleet of supersized plants. Whereas the average installed capacity in the pellet industry’s existing 159 operational plants is under 80,000 tons per year, the planned capacity at the production facilities scheduled to come on line in the next two years is 350,000-plus metric tons per year. For pellet production newcomer Ren-tech, these reclamation efforts are just one piece of a carefully executed strategy that aligns existing production resources of opportunity, the right supply chain expertise and exclusive port  infrastructure with an executed off-take agreement with a creditworthy buyer. The majority of the planned capacity of both Rentech’s Wawa and Atikokan production facilities is already spoken for in two separate offtake agreements. Virtually all the production at Wawa will make its way to the boilers at Drax’s power station, and 45,000 tons of production at Atikokan will stay in Ontario, feeding the recently converted Ontario Power Generation station in Atikokan.
 
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To Pellet Fuel Market
For pellet producers, brownfield redevelopment offers a number of advantages, including built-in access to vital transport and shipping infrastructure. Virtually all of the pellets produced by the facilities being built in the next two years will be burned in foreign boilers. As a result, well-considered and cost-effective pathways to ports are crucial. In many instances, producers are also making investments in infrastructure at the ports their pellets will move through. In the case of Vulcan Renewables, production capacity will come on line before ports are ready to handle the new volume. Until the Port of Jacksonville is ready to handle and load pellets into bulk cargo vessels, Vulcan Renewables will utilize an interim shipping strategy of filling shipping containers and loading pellets onto container vessels the plant is capable of loading.
 
The output from Fram’s Hazelhurst, Ga., facility will move through the Port of Brunswick, which handles the production from its Appling County facility. Pellet storage and handling services at the Port of Brunswick are handled by Montreal-based stevedoring company Logistec. Recognizing the existing channel depth would eventually create a bottleneck, the Georgia Ports Authority recently added six feet of depth to the shipping channel, which will allow a larger class of bulk vessel to berth and take on these new tons.

READ: THE ADVANTAGES OF KMEC RING DIE PELLET MILL
 
Looking Forward
The massive capacity build-out the ethanol industry experienced in 2007 and 2008 was marked by a relatively abrupt slow-down, and just three short years later, the number of ethanol plants under active construction was less than 10. The installed capacity began to equal, roughly, the size of the mandated market and groundbreakings naturally slowed to a trickle.
 
The funnel of pellet production projects under development but not yet under active construction numbered as high as 27 facilities with more than 7 million tons early last year. As the industry continues to grow, however, questions about the resiliency of this marketplace momentum are beginning to surface. The required volume from U.K.-based power producers is significant, but the risk of having demand tied up in one or two planned facilities is already apparent. In December, the conversion of the massive Eggborough Power Station, which would have created another infusion of Drax-like demand, was omitted from a list of projects deemed provisionally affordable. Stakeholders are already working to get the Eggborough conversion back on track, but demand volatility of this sort is certain to impact the development of projects not yet underway. Eggborough’s fate will have little bearing on the production class of 2014, however, and regardless of demand trajectory at the year’s conclusion, it will go down as a year of unprecedented expansion in the biomass industry’s hottest sector.