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Biofuels "could compete with pulp"

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Biofuels "could compete with pulp"

July 03, 2011 - 16:00
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BRUSSELS, July 4, 2011 (RISI) -As more producers look toward biofuels as an increasing energy source, RISI has just published the North American Bioenergy Review. The report updates findings and provides expanded analysis from the 2008 report: Emerging Biomass Industry: Impact of Existing Woodfiber Markets. The report is co-authored by Anne Rahikainen, Michael Grant, Robert Flynn and Peter Barynin.

The study contains trends and outlooks for three key segments: wood pellets, wood-to-electricity and cellulosic ethanol.

Blenk, director of marketing, Wood Products, Timber and Bioenergy, for RISI, notes that there are some important differences in the economic climate between now and 2008, particularly the severe global recession. "There was more money to be had before the downturn. Margins are much tighter now. There is not as much of a push to develop the industry. People are more cautious about spending money."

Other important additions to the new report are chapters detailing production economics as well as one on policy.

Figure 1 - Wood pellets - industry development

The former looks at the sectors competing for the biomass fiber base (for example: pulp, pellets, wood panels, wood energy, co-fire, and liquid biofuels) and ranks their competitive position. "By region, we modeled average or economically-scaled mills for each competing industry. Factoring in their unique market or subsidy setting, we then determined the ability of each sector to pay for fiber in the current environment," Blenk adds.

For the policy chapter, Blenk explains that bioenergy is still heavily dependent on subsidy and policy support. "We looked at all the policies and mandates in place to support fiber procurement, investment, and industry development. This was comprehensive for North America but we also touched on European policy drivers influencing global biomass demand and trade."

If one looks at the economics of production (cost structure, cost competitiveness) as well as policy, more narrowly, subsidies, it is clear that without some sort of subsidy, the pulp sector is by far the most competitive. It can produce product profitably at a fiber cost far above what other sectors can afford to pay.

Figure 2 - Biomass power - industry development

This part of the study includes an analysis of the bioenergy cost structures and competitiveness as a buyer for wood biomass, relative to traditional end-user industries. The effects of subsidies on industry competitiveness and investment are factored into the analyses.

"Although it may seem like there is a competition within the different sectors of the forest products industry for the resource," Blenk says, "it is more of a perceived one. It would be more realistic to say that three different types of bioenergy companies - biomass power, wood pellets, liquid biofuels - are competing with themselves rather than with the pulp producers."

However, Blenk points out that this is more of a general benchmark comparison. The economics can also be dependent on the region and the distance from the resource to the production facility.

Of the three non-traditional bioenergy industries mentioned, Blenk says the liquid biofuels sector, i.e., pump-ready hydrocarbons, has the chance to change the landscape. "It could compete with pulp."

Figure 3 - Biomass power - FPC

The study also looks at how international trade of biomass could affect North American biomass demand over the next five years. This is mostly in the pellet sector because it is more economical to transport the condensed fuel, especially considering any fiber supply risk. Blenk says that some European companies are looking at setting up energy crop leaseholds in the US.

On the policy side, Blenk says federal rather than state policy is the primary driver in the US. The study looks at both and it is done on a regional basis so the study analyzes specific state laws and regulations as well as those emanating from the federal government. Canadian policy is also detailed in the report.

With the uncertain policy climate in the US, there are also budget considerations. This raises the question of whether some of the proposed projects will proceed, particularly in the biofuels sector. There are many commercialization issues, Blenk adds. "Will funding be cut?"

Also included are demand and supply outlooks for pellets, biopower and biofuels in North America to 2015 and analyses of the key drivers of each sector. There are also projections on regional wood biomass availability including competing demand from traditional end-user industries and regional wood biomass prices to 2015.

The project verification process done by the authors shows that there will be significant demand increase in North America through 2015, more than supply can handle. However, the authors believe that some of the projects will not come through. "We see supply issues based on the announcements but feel the economy will push these projects back and any increase on cost for biomass will also push them back," Blenk says.

Figure 4 - Forest industry - FPC

Any significant increase in raw material supply will have to come from the US South.

Blenk says the study provides a much more detailed forecast than the 2008 report. It has a more scientific approach to what it means for the forest products industry. It is a ‘deep dive' analysis of the bioenergy sector. We took a much more extensive project verification process and applied it to the forecasting."

Blenk adds that RISI will have a greater focus on bioenergy and has launched the North American Bioenergy Membership Service. As a result, there will be more information coming out: quarterly reports, policy updates and supply/demand studies. It will look at such topics as biomass sourcing and plant site selection, project feasibility and due diligence, forecasting: demand, supply and pricing.

As well, a European study similar in content to the North American one should be released in summer 2011. It will focus on the EU 2020 targets. For more information, contact Dan Blenk, dblenk@risi.com, 1-781-734-8942.