The challenges to ensure a sustainable pellet trade-2
1.2 Potential supply
To meet the increasing demand projected in the previous section, wood pellet supply will need to increase as well. Moreover, while currently in most countries the majority of pellets consumed are produced domestically, in the future, the raw material resources will get increasingly scarce. For example, Sikkema et al. (2011) show that while in theory, the EU can be self-sufficient with regard to supplying enough wood to the forest industry and the energy sector until 2020, but is quite likely that the EU will to continue to increase their wood pellet imports. More in general, most likely within a decade or so, more than half of all wood pellets produced in the world will be traded internationally. To illustrate this, in the following sections two scenarios are developed in which possible wood pellet production and export in different world regions is described11. These scenarios (especially the high trade scenario) should not be seen as accurate forecasts, but they sketch the range and the possible origin of wood pellet trade flows in the next 10 years or so.
1. A “business as usual / low trade” scenario. The main basis for the expected import flows for the short term (2011-2015) are based on industry expectations as presented in the first half of 2011 (e.g. Schouwenberg, 2011; de Wolff, 2011), announcement in trade journals (such as Bioenergy International) and on recent literature, such as the latest UNECE Forest products report (UNECE/FAO, 2010). These sources already take into account the ongoing investments in e.g. new pellet plants in many parts of the world, and take into account the maximum speed with which wood pellet production and trade can realistically grow in the coming years. In our opinion, they represent the most realistic outlook for the next 4 years. For the period of 2015-2020, potential further development is based on the (projected) availability of woody biomass (e.g. by Pöyry (2010)), and the specific availability of woody biomass in the main sourcing regions (e.g.van den Bos, 2010; De Wit et al. 2011 for Eucalyptus/Brazil, and Gerasimov & Karjalainen, 2011 for NW Russia).
2. An “optimistic/high trade” scenario. This scenario basically builds forth the conservative scenario, but assumes that from 2014 onwards, a number of world regions will use land for energy corps to produce additional wood pellets
In both scenarios, we only look at wood pellet trade. In other words, we do not analyze the trade in wood chips. Neither do we take into account production for domestic consumption, The available and predominant types of feedstock (either woody residues such as sawdust, discarded wood, bark, etc.) or roundwood (such as eucalyptus or pine trees from dedicated plantations) will be discussed in more detail in the following sections. The projected supply of wood pellets in the sourcing regions is mainly dependent on sufficient demand, in the EU, (South-) East Asia, and possibly the US. If this demand is not met, it is very unlikely that new investments will be made.
The business as usual / low import scenario
Based on past and current import trends, press releases of individual companies, expert opinions and (especially) on scenario studies by Schouwenberg (2011) and de Wolff (2011), we identified a number of main future sourcing areas. In the following sections, for each of the sourcing regions, a short description of the current production capacity and anticipated growth in the next 10 years, and both currently sued and potential future feedstocks are briefly discussed.
East and West Canada
The total capacity of the existing 34 wood pellet mills is 2.6 million tons (Murray 2011). About 71% of the Canadian pellet production capacity is located in the west, mainly British Columbia (BC). There are 16 plants, with an average capacity of 118 kilotons per year, and the largest is 400 kilotons/year. The total western capacity is 1 889 kilotons. While the largest part of the feedstock is still based on wood residues form wood processing, it is notable that in past years, wood of trees killed by the Mountain Pine Beetle (MPB) has also become an important source of feedstock for wood pellet production. Currently, this share is about 30, but in 2020, it was estimated that up to 50% of the feedstock used for wood pellet production may be from MPB wood (Murray, 2011). The eastern part Canada currently contains 29% of the total wood pellet production capacity. The 18 plants have an average of 43,000 tons and the largest is 120,000 tons (Murray, 2011). The feedstock is basically 100% residues from the wood processing industry. Almost all Canadian production is currently exported: in 2010, this amounted to about 1.35Mtonnes to Europe, 0.9Mtonnes to the US (mainly from the land-locked plants in the center of Canada), and 60 kilotons from BC to Japan. Domestic use is about 100 kilotons (Bradley, 2011). For 2011, expectations are that imports will increase to 1,75 MT and 100 kilotons to the EU and Japan respectively, and will remain stable for the US (Murray, 2011). Regarding capacity and export developments, Bradley (2011) estimates that production capacity might increase from 2.6 to 3.5 million tons in 2014, and to 5.5million tons/year in 2018. An estimated maximum export potential is 4.7 million tons, of which about 55% from British Columbia (Western Canada), and the remainder from Central and Eastern Canada. This scenario is based on the expectation that demand in South Korea will grow strongly to allow for the expansion in BC, but in theory, this amount could also become available for Europe, depending on sufficient demand and economic feasibility. The feedstock base for this expansion is likely partially going to be further residues from sawmills, but possibly also increasingly forest residues (collected at the roadside) and (in BC) also MPB wood, which would require an additional collection effort. Verkerk estimates for BC that in BC alone, a total of 1.3 oven-dry tons of sawmill residues may be available, which would in theory suffice to supply roughly half of all wood pellets produced in BC in 2018. The remainder may likely be produced from MPB trees (Murray, 2011). For eastern Canada, we assume that production for export may increase to 920 kilotons in 2020, but the feedstock source will remain 100% sawdust.
South-east USA
The ‘fibre-basket’ in the South-East of the USA encompasses (parts of) the states of Georgia, North Carolina, South Carolina, Alabama and Florida. This area has been a major producer of wood for the pulp and paper and construction sector for decades. Due to the housing crises and decreasing demand for roundwood for construction, large amounts of wood are currently under utilized in this region.
According to Bioenergy International (2011) the total capacity in this area was about 1.1Mtonnes at the end of 2010 (Bioenergy International 2011). Capacities of individual plants ranged between a few small ones (<50 kilotons), several medium sized ones (50-160 kilotons), and one very large plant (500 kilotons, GreenCircle, Florida). These plants typically utilize wood residues from the existing saw mills, except for the GreenCircle plant which utilizes roundwood from southern pine. In May 2011, one of the largest wood pellet plants in the world has started operation in Waycross, Georgia, with a capacity of 750 kilotons per year-solely using southern pine roundwood as feedstock, and utilizing the bark to produce the required heat for drying. Also for the years to come, further plants are planned using southern yellow pine as feedstock, e.g. a 250 kilotons plant planned to open early in 2012 in Western Alabama, expandable to 500 kilotons, destined for export and domestic use (Westerveld, 2011). Nevertheless, it is also likely that further woody residue streams will be utilized for wood pellet production as well. US-based consultancy Forisk (2011) estimates that in the coming 5 years, the total demand for wood as raw material for wood pellet production may rise from about 20 million (short & wet) tons in 2011 to about 30 million short tons in 2015. While the projected demand for 2011 is higher than current capacities, this still supports the projected rapid increase in production as assumed by Schouwenberg (2011) and de Wolff (2011).
North-West Russia
In the past years, the Russian wood pellet market was rather turbulent and erratic. Pioneer companies, which started the development of pellet production withdrew from the market several years ago. The second generation of pellet mills is also on the stage of closing or business diversification. The third generation of pellet plants, which are constructed on a base of big woodworking factories work stable. There are a number of medium sized plants (between 80-130 kilotons/year), and a few smaller plants that produce each about 20-40 kilotons per year and export the major part of it. Several large projects have been announced in the Leningrad region as well as in other regions. For example, the new company Russian Wood Pellets (RWP) plans to construct several pellet mills with total capacity of 3 million tons of pellets per year. For these wood pellet plants, it was assumed that sawdust is the (main) feedstock. However, the biggest plant by far (in fact the biggest plant in the world) is the recently commissioned Vyborgskaya wood pellet plant, situated close to the Finnish border, in the vicinity of St. Petersburg. This plant has a capacity of 900 kilotons of wood pellets. According to Lesprom (2010), the raw material for pellets consists primarily of logs from Russia and Belarus, which is partly FSC-certified.
North-East Brazil
Production capacity and feedstock: Up till 2011, no meaningful wood pellet production capacity in Brazil exists, and no wood pellets have been exported so far. However, according to several press releases (Suzano 2010, 2011), Suzano Papel e Celulose is negotiating with the Brazil's Alagoas state authorities about the construction of one million tons wood pellet plant, requiring about 30,000 ha of eucalyptus plantations to deliver the feedstock. In the state of Alagoas, investments in eucalyptus plantations have been ongoing in recent years. Downey (2011) reports that two more plants may follow in 2018-2019. This is in contrast to the scenario given by de Wolff (2011), which assumes 3 million tons of wood pellet production from 2015 onwards. As the plant sites are not clear yet, it is difficult to estimate transport distances. Distances form plantations to the pellet mill are likely 50 km on average. Distance to a port is difficult to estimate, but as the state of Alagoas is not reaching further inland than 300 km and has a well-developed road-network, it seems reasonable to assume that average transport distances will not exceed 200 km.
Australia and New Zealand
Based on the information provided in chapter 4, we estimate that Australia could expand production (and export) capacity to 1 million tons per year by 2020, whereas New Zealand could increase exports to 0.5 million tons in 2020. As can be seen in figure 5.5, the total potential available for import to the EU under the business as usual scenario may increase drastically from about 42 PJ in 2010 to over 280 PJ in 2020 (almost 16 million tons)-under all conditions as stated above. This scenario is based on existing projects, project currently being built and announced projects. Naturally, especially assumptions regarding the 2nd half of the decade become increasingly uncertain. For example, it is very uncertain whether the large-scale production of pellets from eucalyptus in Brazil will occur, and if the anticipated continued growth in wood pellets from pine wood in the US can actually be sustained until 2020.
The high import scenario
The scenario developed in the previous section is mainly based on industry expectations. In the high import scenario, we assume that demand for wood pellets in the EU and abroad increases rapidly, triggering investments in additional wood pellet plants based on feedstock from new plantations using short rotation crops. We base this high import scenario on the following assumptions:
We assume that short rotation woody energy crops will likely be established in the same regions as currently pulp plantations are established. Based on the selection criteria mentioned in the previous bullet point, Brazil is by far the country with the largest expanding pulp sector. At the end of 2009, the forecasts expected a capacity expansion of almost 8 million tons per year (Pulpmill watch 2011).
Other countries would be Uruguay (3 million tons/year) and South Africa (almost 600,000tons/year). Additionally, it is quite possible that new plantations will be established in the western cost countries of Sub-saharan Africa such Liberia, Sierra Leone and Ghana. These regions have been in the news lately mainly with regard to projects for biofuel production (e.g. a 57,000 ha project in Sierra Leone for the production of ethanol, (Johnson 2011), it is deemed reasonable to assume that these countries may also produce woody biomass for export (see also AfricaInvestor, 2011). Similarly, Mozambique has received a lot of attention in past years regarding the possibilities to produce biofuels (e.g. Jatropha) or wood (e.g. Eucalyptus). Batidzirai et al. (2006) have pointed out that the technical production potential for wood pellets (or advanced biofuels) from eucalyptus may reach up to 6.7 EJ (equivalent of approximately 270million tons of wood pellets). While this is a hypothetical number, the study shows that Mozambique could in theory produce large amounts of lignocellulose in highly-productive, rain-fed areas, and that also efficient logistics for export of wood pellets can be established.
Finally, it is also possible that (given the geographic vicinity) additional roundwood from Russia may be used for energy purpose. Especially under the current export tax system, it is plausible that additional roundwood is harvested for wood pellet production. Based on these assumptions, we postulate the following additional sourcing areas under a high-demand scenario:
- Brazil rapidly increases production of (additional) short-rotation (i.e. 2-3 years) eucalyptus plantations from 2014 onwards to produce 2 million tons of wood pellets in each of the following states: Bahia, Rio Grande do Sul and Minas Gerais.
- Similarly, in Uruguay, 2 million additional tons are produced from eucalyptus plantations.
- In the Western African countries of Liberia, Sierra Leone, Cote d’Ivoire and Ghana, it is assumed that a total of 3 million tons of wood pellets will be produced by 2020 from fast growing plantations.
- Similarly, we assume that also in Mozambique a supply of 3 million tons of wood pellets could be established between 2014 and 2020.
- Finally, it is assumed that up to 3 million tons of wood pellets may be sourced from (managed or unmanaged) forests in North-west Russia.
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