Vol. VIII No. 1
January / February 2014
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YE 20 R 1 ISS S’ G 4 UE UID E
www.SoilandMulchProducerNews.com
Expanding European Biomass Energy Fuel Demands Impact US Wood Supplies
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purred on by self-regulation and concerns about climate change, and encouraged by government subsidies, the burgeoning European biomass fuel market is consuming massive amounts of US produced wood pellets, much to the consternation of the domestic mulch and horticulture industries. And this impact is particularly noteworthy in the US Southeast where the European wood purchases are concentrated and where the US domestic biomass energy demand is growing due to the fact that the 10 largest biomass plants are located in that region, according to industry experts. An annual biofuels report for 2013, recently published by the European Union (EU), shows European wood pellet consumption is expected to increase to 20 to 32 million tons of oil equivalent (Mtoe), or approximately 50-80 million metric tons by 2020. The report estimates 2008 consumption at 2.5 Mtoe. The growth in consumption of wood pellets went from 4.606 metric tons in 2006 to 14.3 million metric tons in 2012. Nearly 16 million metric tons were consumed in 2013 with a projection of 17.1 million metric tons this year. The largest EU consumer of wood pellets is the UK at 4.54 million metric tons in 2013. Denmark, the Netherlands, Sweden, Germany and Belgium also consume large volumes of pellets. Coupled with the rapidly rising demand for wood pellets, both European production of the product as well as imports are skyrocketing, says the report. In 2006, the EU produced approximately 3.52 million metric tons of wood pellets. Last year, production reached 10.15 million metric tons, and will likely increase to10.3 million metric tons in 2014. Imports mirrored growth in EU production by increasing from a mere 800,000 metric tons in 2006 to 6 million metric tons in 2013, with a projection of 7 million metric tons in 2014. Another recent report on 2012 statistics reveals the massive amount of wood pellets imported by Europe. The EurObserv’ER Solid
By Todd Williams Biomass Barometer estimates approximately 30 percent of the EU’s pellet consumption came from imported sources in 2012. The US, as the largest source of pellets, exported about 1.764 million metric tons that year, with Canada exporting 1.346 million metric tons. All these numbers reflect the fact that supply of pellets in Europe is falling short, thus driving massive imports. According to biomass industry watchers, as these export numbers rise, along with the US demand for wood pellets for both electric power generation for the grid or for private use, the supply tightens up. As the supply shrinks, pricing for raw materials for pellets and mulch and fiberboard becomes more competitive. Furthermore, parity in pricing is also affected by US government actions, such as the 2008 Farm Bill’s Biomass Crop Assistance Program (BCAP), which provided a subsidy to forest and agriculture land owners for eligible biomass material delivered to a qualified biomass conversion facility. In essence, this program subsidized the wood pellet makers by providing matching grants of $1 for each $1 per dry ton paid by a qualified biomass conversion facility, up to $45 per ton to wood waste harvesters. This amount could be paid for up to two years. According to FSA Acting Director of Public Affairs, Todd Atkinson, “By regulation, BCAP cannot provide matching payments to biomass determined to have an existing market within a
particular locality. That restriction has existed since October 2010, and that restriction remains in place.” This provision in BCAP disrupted normal supplies to the mulch industry by driving raw material prices sky high. In fact, the price these wood producers were paid for selling wood to the biofuel industry was about $90 per ton with the subsidy in place. Mulch producers simply couldn’t afford to meet those prices. “The question to our raw material suppliers became do we sell wood waste to mulch customers at the unsubsidized rates, or do we sell to the biofuel industry at a higher price? The choice disrupted the mulch market for waste wood and hurt our members,” explains Joe Bishoff, executive director of the AmericanHort trade association. This group has over 2,500 members in the horticulture and nursery industries, representing about $16 billion in agriculture products. Further muddying the wood market waters was the housing market collapse. As sawmills slowed production, the supply of sawdust and bark waste dried up, further affecting prices, according to David Atkins, Woody Biomass Program Manager for the United States Forest Service (USFS). “Most pellet plants were built near sawmills in order to utilize the waste, including saw dust and slab wood. We’ve had the pellet, pulp, mulch and chipboard manufacturers all compete for sawmill waste. As sawmills cut lumber production, due to Continued on page 3