PÖYRY VIEW POINT GLOBAL MARKET, PLAYERS AND TRADE TO Pellets - Becoming a Global Commodity?

Transcription

1 PÖYRY VIEW POINT GLOBAL MARKET, PLAYERS AND TRADE TO 22 - Becoming a Global Commodity?

2 Pellet supply and demand, policies and cost competitiveness Perspectives on the global pellet market, Pöyry prepared a pellet multiclient report in 29 on the current state and expected development of the wood pellets market up to 215. This first report established a base of reliable data and analysis on pellet trade, prices, production capacities and output globally and at a country level. Much has happened in the global pellet market since the publishing of the first report. The content of the report is still highly relevant, however three important developments have taken place since, leading Pöyry to expand the analysis scope and extending the outlook to 22. Firstly, even if wood pellets currently dominate the pellet market, the importance of pellets from agricultural residues is expected to increase, particularly in Asian markets, where local raw material availability is good. Production technologies for torrefaction have also reached a level where many players in the market are now looking into the feasibility of torrefaction as a long-term feedstock alternative. Due to these developments, the report s scope has been expanded from covering wood pellets only to now inluding a global pellet market with agricultural and torrefied pellets. Agricultural pellets have regional importance particularly for the Asian pellet markets, whereas torrefaction has global relevance. The specific topics cover raw material costs and availability, production methods, product characteristics, logistical considerations and suitable end-use markets and combustion technologies. Secondly, the policy developments in parts of the world and increased visibility of governmental targets such as the NREAPs (National Renewable Energy Action Plans), have shaped and shifted the expected future demand for biomass. These plans together with the policy development in regions, such as the U.S., Japan and Korea provide the additional information required to expand the pellet market prognosis from 215 to 22. The report also discusses the steering mechanisms of the relevant policy instruments to the biomass markets in general and their impact on the pellet markets and paying capabilities of the different market players in particular. Thirdly, increasing production and logistics costs as well as shifting market prices have changed the regional cost competitiveness for pellet producers, and the economic tradeoffs between production costs and delivery distances to end users / consumers. These changes have been driven by several cost components, e.g. raw material, local energy and crude oil prices, thereby influencing production and logistics costs in different proportions on a global scale. The report looks into the costs and market price drivers, as well as the competitive positions of different geographical regions in supplying global demand. Consequently, as pellets are becoming increasingly viewed as a global commodity, the report also addresses trade enablers and inhibitors, as well as the forming of value chains and distribution channels to both industrial and residential markets. 2

3 CASE STUDIES Pöyry has delivered consultancy projects within the pellet sector in 21 for most of the leading companies in this sector as well as emerging new players. These projects have been related to a wide range of topics, e.g. investment opportunities, cost competitiveness, markets, price forecasting, manufacturing, feedstocks and logistics. Most projects have focused on wood pellets, however there has been an increasing interest in the opportunities of torrefaction, and in specific geographical regions in agricultural biomass as a raw material for pellet production. Project examples: Choice of production location: Identification and evaluation of pellet production opportunities including market strategy, business environment and cost competitiveness analysis, country level evaluation of wood markets as well as investment viability in various locations globally in relation to the an end user markets. Due diligence: Due diligence of wood pellet production, including business case assessment and sourcing, overall cost competitiveness, evaluation of local and global market outlook and business development potential for investors, producers and electricity and heat off-takers. Investment feasibility: Feasibility analysis of pellet and wood chip production facilities and export logistics, as well as technical and economical assessment of expansion of an existing pellet production facility relative to the market opportunity. New business development: Torrefaction technology assessment and strategic business opportunity evaluation. EXAMPLE TOPICS COUNTRY PROFILES Raw materials for wood, agricultural and torrefied pellets Production technologies for wood, agricultural and torrefied pellets Pellet end use markets: residential, commercial and industrial Relevant regulatory frameworks and policy instruments Renewable energy policies impact on pellet market development Pellet trade flows and value chains Global cost competitiveness Pellet pricing Country profiles The first pellet multiclient report provided country profiles of 27 major and emerging pellet markets on six continents. The country scope has been expanded to cover more regional markets as well as torrefied pellets and pellets from agricultural residues in addition to wood pellets. Each country profile contains information of market and policy developments, market segmentation, quality standards as well as information on the largest producers and production site locations. 3

4 Selected Key Findings The current global market volume of biomass pellets of around 16 million mt/a is projected to increase to 46 million mt/a by 22 (CAGR ~11%), representing a total market value of up to USD 8 billion (real 21). Adoption of biomass pellets is largely driven by policy and financial incentives in much of the world currently and this will continue to be the case though increasing influence from fossil fuel prices will play a larger role in the future. Western will remain the largest consuming region (13 million mt/a), with much of the growth being driven by use for the production of electricity in the Benelux and the UK. In addition, continued growth is forecast for the residential and commercial heating markets in Scandinavia and other parts of. Further growth is predicated on a large gap between what is currently used for biomass based energy generation currently and what is outlined in each country s National Renewable Energy Action Plan (NREAP) to come from pellets. GLOBAL PELLET PRODUCTION - 21, 215 AND 22 OUTLOOK Million tonnes North America South America Western Eastern Russia Japan & Korea China Oceania In North America, in contrast to, most of the growth is predicted to come from the residential heating market, largely driven by the increasing cost of heating oil relative to fuel pellets. Moderate growth is also forecast in the industrial energy market though this assumes an extremely minor role for government incentives which could otherwise greatly increase adoption of pellets. China has appeared on the radar as a significant future pellet consumer with the addition of a great numbers of pellet plants to the project pipeline. Most of the feedstock requirement is forecast to be satisfied through production from domestic agricultural and processing residues such as rice husk and so this growth is not expected to have a large influence on international trade flows. China GLOBAL PELLET CONSUMPTION 215 AND 22 OUTLOOK Western will continue to be the largest pellet consumer in the next decade. GLOBAL North PELLET America CONSUMPTION will see - growth 21, 215 mainly AND in 22 the OUTLOOK residential pellet sector. The Asian countries have seen emerging use of pellets recently and this will continue. North America South America Western 16.4 Eastern Russia China 1. Japan & Korea Million tonnes Oceania

5 alone is expected to account for greater than 2% of worldwide demand in 22 compared to a negligible amount currently. This will really close the gap in consumption between China and current users such as North America and Western. PELLET TRADE FLOWS, ,1 3.3* 4 5 Transcontinental trade flows of pellets totalled 2. million mt/a in 21 (including Eastern to Western ), with nearly all of this between North America and Western. Relatively minor amounts also moved from North America to Asia, Canada to the US, and Eastern to Western. All of these current trade flows are expected to increase in magnitude while trade flows are expected to emerge from South America and Russia to Western as well as trade from Oceania to Japan and Korea. Total transcontinental trade flows in 22 are expected the reach over 18 million mt/a, or about 4% of total production. Trade flows (1, tonnes) Current Emerging * EU 27 internal trade In order to supply this international trade in biomass pellets, increasingly large pellet manufacturing facilities have been built in regions with high biomass availability to ship to those with less. The first of these plants were built in Western Canada (21 - Premium : 12, mt/a; 21 Pacific Bio Energy: 13, mt/a; 25 - Pinnacle : multiple plants) in order to take advantage of fibre made available by the Mountain Pine Beetle infestations. Next, plants were built in the south-eastern US to utilize roundwood (28 - Green Circle Bio Energy: 5, mt/a; 28 - Fram Renewable Fuels: 21, mt/a) and residues (28 - Dixie /New Gas Concepts: 5, mt/a), and Australia to make use of harvesting residues from Eucalyptus plantations (28 Plantation Energy Australia: 25, mt/a). Currently, additional large plants are in varying stages of development in Russia (211 - Vyborgskaya: 9, mt/a), Eastern, and South America ( Suzano: 3X 1,, mt/a). These are all designed primarily to feed the growing demands of Western but much is likely to be destined for Northeast Asia in the relatively near future. The other side of the pellet industry is the residential market and this facet is highly fragmented in most regions. These smaller plants vastly outnumber larger ones by number. They often utilize sawmill residues from nearby wood products industries or are integrated directly into a sawmill. Because of the various markets to which these residues can be sold and fluctuations in wood product demand and sawlog supply, many of these pellet facilities often run at rather low utilization rates. This was very much the case during the economic downturn of the previous two years. All wood product manufacturing decreased, and therefore, less residues were available to the PLANT SIZE DISTRIBUTION, 21 (1, mt/a) < >25 market. Couple this to the fact that a significant number of pellet manufacturing facilities focusing on the residential markets came on line in 28 and 29 and it becomes clear that currently this can be a difficult market to be in. As production conditions and end use markets for the two different pellet classes differ, as do the prices and their respective price outlooks. Residential pellet markets are usually rather regional and they are expected to remain this way, though on average, prices are expected to increase in where the greatest number of trades occurs. Industrial pellets prices are more reminiscent of commodities, and are therefore less regional. The prices for the latter are predicted to remain relatively stable. Large amounts of supply are predicted to come on line from new regions while incentives in will both increase demand and act as a sort of cap on what pellet consumers are able to pay. Number of plants 44 Plant capacity size class (1, mt/a) 5 2 Pellet production technology is rather standard; though there are alternatives for many of the different processing steps (i.e. drum vs. belt drying, flat vs. ring die). A paradigm shift is not likely in the way that pellets are produced though many companies are working on making the process less energy intensive. Pelleting of torrefied biomass is a technology which promises to increase the energy density of biomass and improve cost efficiency. However, according to Pöyry s calculations, the cost of transport would need to increase significantly to make it feasible at current production cost estimates. On the other hand, torrefaction improves the fuel qualities of biomass to the point that co-firing utilities may be willing to pay a premium. 3

6 GREENHOUSE GAS (GHG) EMISSIONS OF BIOMASS SUPPLY CHAINS INDICATIVE DELIVERED COST FOR BIOMASS gco2e / kwh Delivered cost CIF ARA (USD/GJ) Shipping distance (nm) Baltics NW-Russia US East Brazil Canada West Australia Region 1 Region 2 Region 3 Region 4 Region 5 Region 6 Region 7 Region 8 Region 9 Region 1 Forest Management Infrastructure at site Drying Pelletising Transport 35% Saving 5% Saving 6% Saving Biomass delivered to mill Chipping Capital costs Pelleting Inland transport (1 miles) Heat treatment in port Shipping (incl. loading and unloading) Full shipping Distance (nm) There has been interest in agricultural products for some time though very little market penetration for the production of pellets. Wood prices from traditional sources are likely to increase and agricultural products such as harvesting and processing residues, coppice, and dedicated energy crops may become more attractive as an alternative. They offer the possibility to grow the feedstock closer to the end use as well as a faster growth rate on a given area of land in many cases though combustion characteristics and chemical properties are often less favourable. The driving reason for the adoption of biomass in general for the production of power has been to reduce the GHG emissions from thermal power plants. The main reason for pelleting is to increase the efficiency though this does not necessarily decrease the GHG emissions as compared in Pöyry s case study. Of each link in the supply chain, transport from production site to end use remains the most influential though even the pellets from Australia to Rotterdam still meet the 6% reduction in emissions compared to the an Union s fossil fuel comparator. In conclusion, the fact is that pelleting adds to the production cost of biomass fuels compared to raw wood or wood chips, though increases both the transportation efficiency and fuel characteristics. As long as biomass fuels are demanded in regions where the resource is not available and the homogeneity and feeding characteristics of pellets are desired, pellet demand and trade will continue. The magnitude of the growth for this market is heavily dependent on the political will for biomass energy and the associated incentives. In addition, demand depends on the cost of alternative energy sources. There are some signs that industrial users of pellets are beginning to integrate upstream by building their own pellet mills in areas with high biomass availability. This can assure them supply security. In addition, many small pellet producers are starting to either downstream integrate to control their distribution or joining with other pellet producers to increase their market share at least regionally. This shows signs of market maturation though, in most markets, biomass pellets have not reached the point of being a commodity due to differing quality standards and a lack of transparency due to relatively few trades per unit time. Pöyry has extensive experience in the biomass-to-energy sector covering the whole value chain from biomass sourcing, processing and logistics, heat and power generation, distribution and energy market analysis, advisory and policy design. Through its global network, Pöyry has been involved in an extensive number of projects in the pellet industry both engineering operations and advising clients in areas such as market and procurement strategies, technology, business processes, investment feasibility, competitiveness and pricing. Pöyry possesses the leading know-how in the biomass-to-energy sector, enabling us to provide valuable insights and experience to our clients. For more information, please contact a member of the Pöyry Bioenergy Practice: MAIN CONTACTS: Hannes Lechner, Northwest Tel hannes.lechner@poyry.com Andreas Teir, Nordic countries Tel andreas.teir@poyry.com REGIONAL CONTACTS: Hubert Röder, Central and Eastern Tel hubert.roeder@poyry.com Jonathan Rager North America Tel jonathan.rager@poyry.com Manoel Neves South America Tel manoel.neves@poyry.com Petri Haataja Asia-Pacific Tel petri.haataja@poyry.com

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