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UPM on target to capture part of EU biodiesel market

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UPM on target to capture part of EU biodiesel market

January 23, 2011 - 21:12
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NEW YORK, Jan. 24, 2011 (RISI) -Continuing with its plans to become a significant producer of biofuels, UPM selects a possible site in Finland for its biorefinery and looks next to make investment decisions.

UPM, the world's second largest paper producer, recently announced the selection of Rauma as the possible location for a new biorefinery in Finland to turn biomass into advanced biofuel. The site selection marks another step forward in the process for UPM to meet its target of becoming a major player in the production of biofuels and bio-energy. The biorefinery will most likely be built in conjunction with UPM's Rauma paper mill, allowing the new facility to capture higher yields from the wood used presently in paper production. UPM also selected Strasbourg as a competing site for a biorefinery in France, where an environmental impact assessment is ongoing.

With the completion of a new biorefinery, UPM is hoping to capitalize on a growing European market for biofuels, specifically biodiesel. Europe is already the leading biodiesel market in the world, one that is expected to grow 10% per year, producing over 45 billion litres of biodiesel by 2020. Led in part by an EU binding mandate of using biofuels to meet at least 10% of its energy consumption by 2020, this growth is also being fueled by government-based investment efforts. Spain has already invested heavily in biodiesel production and is expected to continue, while external markets such as Canada and China are seen as key potential consumers and producers of biodiesel.

Using the logging residues, stumps and bark, so called "energy wood", as the raw materials for biodiesel production should help UPM offset the harshest criticism of biofuel, namely that it requires food crops as a feedstock. Focusing on the production of advanced biodiesel, as opposed to ethanol, will also keep UPM in front of the biofuels market as ethanol production is expected to wane, while biodiesel and biofuel drop-ins are picking up steam.

Building a biorefinery next to an existing mill, such UPM Rauma, consolidates the supply chain for raw materials and produces higher yields for additional energy

Turning biomass into biofuel

UPM has been increasing its stake in advanced biodiesel since 2006 when the company announced it was planning to become a significant producer of renewable biofuels. Energy production is already a part of the UPM portfolio, in the form of electric power generation under the energy business group. Adding liquid biofuels to the mix is an opportunity for UPM to diversify the energy group with the existing resources at hand, explains Petri Kukkonen, Director, UPM Biofuels Business Area.

"In liquid biofuels we have the biomass through the making of pulp and paper," says Kukkonen. "We can expand to use the whole tree, the stumps, branches and tree pulps, refining those materials to a high level."

The new biorefineries will most likely be placed adjacent to an existing mill, such as UPM's Rauma mill. This consolidates the supply chain, delivering the raw materials for multiple products to a single area and creates greater economies of scale. "By integrating our biorefineries to a pulp and paper mill," say Kukkonen, "we can gain significant benefits mainly in the form of higher yields for additional energy, that we can take in and convert to liquid biofuels."

Plans for a biorefinery have meant UPM also needed to find the right technology to turn biomass into biofuel. Working with global biofuels technology and pulp and paper supplier, Andritz, and its associated company Carbona, UPM has developed a gasification process designed specifically for wood-based biofuel. As part of this process, dried biomass is converted to a gaseous form, delivering a synthetic gas that is fed into a Fischer - Tropsch mechanism that, in turn, produces a liquid hydrocarbon mixture. The resulting bio-crude can then be refined into specific biodiesel form.

The biodiesel produced will mainly be sold to retailers who best understand the blending obligations and who have the distribution capabilities to take the biofuel to market. No distribution partners have been identified yet, but it is expected the biodiesel produced will easily fit into most existing pipelines and distribution channels with other petroleum-base fuels.

"No one has ever built a plant of the type we are planning to do," says Kukkonen.

UPM aims to become a major player in Europe in the production of renewable advanced biofuels that are currently in the development and piloting stage

Securing investments

The next step for UPM is to secure the investment for any future biorefinery facility. At the moment, UPM has not made an official investment decision on building a biorefinery. But the company is in the process of applying for grants for both the Rauma and Strasbourg locations under the European Union's NER300 program. The program aims to invest in technology projects that will reduce Europe's carbon footprint and is funded from the sales of emission allowances in Europe. Decisions on these grants are not expected before the second half of 2012.

"We are pretty far along with the development and we are ready to make the investment into the first plant as soon as we know what kind of financial support we will get from grants and subsidies," says Kukkonen. UPM is also looking at other investment sources in both France and Finland.

In addition to a biorefinery for biodiesel, UPM is eyeing development into production of other types of renewable energy. Bio-oil production is on the planning table, in a research and development program with Metso, Fortum, and VTT. Using a liquification process, the bio-oil could be used as a replacement for heavy and light fuel oil or for heating purposes. And UPM is in the early stage of looking into the conversion of sludge and commercial industry waste into ethanol. These efforts could deliver high value products to the market, even if they are a small part of the overall energy production from oil and utility companies.

"Even if the whole industry placed all their bets on renewable energy, in the form of power or liquid fuels, we would still not contribute in the same way as a major electric or power company," says Kukkonen.

It is unlikely that biodiesel will propel pulp and paper companies into the next generation of energy giants. There is, however, a very conceivable scenario where a diverse set of alternative and renewable energy sources are available for consumption and where biomass-based biofuels production is an important segment in the market.

Ken Norris is a US based contributing editor to PPI magazine and the RISI community website and can be contacted at: knorris@quintstrategies.com