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hen the EU government passed lofty greenhouse gas reduction and renewable energy goals over a decade ago, ensuing market forecasts for future wood pellet consumption were glamorous. Out of the woodwork came an inordinate number of global players looking to seize a slice of opportunity. While some achieved success, others were not able to gain share in a difficult-to-navigate export market, on top of running a business that requires even more than just passion, patience and perseverance to successfully maintain—or grow. With North America leading the pack of wood pellet exporters by a landslide, production there has grown exponentially over the years. EU consumption has remained a significant catalyst, but is expected to level out in few years, leading suppliers to eye new opportunities in Asia. But while new markets are on the horizon, the EU remains a powerful force for now, and is expected to remain a key driver for at least the next few years, with many large-scale, pellet-consuming projects slated to come online by 2020.

Production, Consumption Trends

In 2016, nearly 29 million metric tons (MT) of wood were manufactured globally. The EU produced close to half that, at 14 million MT, meeting 65 percent of its domestic demand of 21.7 million MT in 2016. The remaining 35 percent was mostly shipped from North America, with small amounts from other areas, including Russia. While close to the same size as the U.S., in contrast, wood pellet production is spread out across many member states in the EU, and not concentrated in a specific region. EU production trended upward for many years due to growing demand, but following a 4.5 percent growth spurt between 2014 and 2015 (13.5 to 14.1 MT),

production levels dipped to 14 MT in 2016, a slight decrease of about 0.4 percent, according to Gilles Gauthier, manager of the European Pellet Council. “Adverse weather conditions was the main factor in the stagnation for 2016, with the expansion in underdeveloped markets acting as a mitigating factor,” he says. “One thing to note is that the industrial market is less weather-dependent, and shows a continuous upward trend over the years.” According to the European Biomass Association’s annual report, of the 21.7 million MT of wood pellets consumed in the EU in 2016, 61.7 percent was used for heat—residential (42.6 percent), commercial (11.8 percent) and heat from combined heat and power (CHP). (7.3 percent). Power plants consumed the remaining 38.3 percent. Fiona Matthews, research manager with Hawkins Wright, says that since the drivers of the domestic and commercial sectors are very different, they have grown at much different rates. “We expect much slower growth in the residential heating market,” she says. “The industrial market is characterized by a very small number of individual users, each of whom consume very large volumes. Although industrial pellet demand will rise significantly as a result of two new projects coming online—Lynemouth and MGT Power—we do not currently envisage any additional demand growth there.” Five new industrial-scale pellet-consuming projects are expected to come online between 2018 and 2020, the largest user being EPH in Lynemouth, United Kingdom. The 420-MW, coal-fired power plant is being converted to use up to 1.6 million MT tons of wood pellets, and is due to come online in early 2018. A handful of projects set to come online in the Netherlands this year will create about 1.5 million MT of new demand, and finally, MGT

14 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

Power’s 299-MWe project in the U.K. will consume about 1.1 MT, beginning in 2020. Unlike most of the pellet-using power projects, MGT was purpose-built, points out Seth Walker, senior economist at FutureMetrics. “A lot of these projects are coal plants that are being converted to extend their service life, and using wood pellets was not meant to be a permanent solution,” he says. “I think demand will probably plateau for the next couple of years.” Utilities in various member states are interested in converting to wood pellets, but interest is all it is, at least for now. “We still get inquiries from our utility clients all over Europe, some Spanish, Portuguese, German and France coal stations, looking to covert to biomass,” says Hannes Lechner, senior principal at Pöyry Management Consulting. “These countries have fallen out of favor with coal, and have ambitions to close them fairly quickly. The only option they have for survival is converting to biomass, but they also need the appropriate support system, and this is usually where it falls over. The government isn’t too keen on support for large-scale, import-based biomass projects.” These potential conversion considerations aside, like Walker, Lechner says that demand is set to level off by 2020, followed by a stable period. And from 2026 onward, demand is expected to contract. “It will contract quite significantly, especially during 2027, when support for Drax and Lynemouth comes to an end,” Lechner says. “This could have quite a significant impact on U.S. suppliers, and potentially, European suppliers form Portugal and the Baltics. Unless, of course, things change. But as the intent of the scheme stands at the moment, demand will contract significantly.” In preparation for shifting markets, Canadian suppliers are already contracting and partnering with Japanese companies, as is U.S. supplier Enviva, Lechner points out,

2018 January/February Pellet Mill Magazine  

The European Production & Consumption issue

2018 January/February Pellet Mill Magazine  

The European Production & Consumption issue