Positioned for Growth

It's no wonder Canada is a world leader in forestry and wood products. The country has 10 provinces, three territories and endless shorelines along the Atlantic and Pacific oceans. In between its coastal boundaries, Canada boasts 981 million acres of forest, making up 10 percent of the world’s wood reserves.
The wood pellet industry has increased significantly over the past few years due to improved technology and export capabilities.

The country’s pellet industry is represented by the Wood Pellet Association of Canada, which is funded largely by the pellet producers. WPAC’s mandate is to foster good working relationships between the pellet industry, government and the public, to provide safety certification and quality standardization and to research the enhancement of pellet fuel potential.

Although forestry is a prominent business in Canada, pellet manufacturers are not clear-cutting trees and destroying the environment, says Gordon Murray, WPAC executive director, who stresses that pellet companies have created a sustainable industry out of material that was previously considered waste. 

The fuel is manufactured from forestry leftovers including fired logs, beetle-killed timber and residues. Vaughan Bassett, vice president of sales and logistics at Pinnacle Renewable Energy, says its facilities primarily use forest and sawmill residuals to produce pellets. Pinnacle is the largest pellet manufacturer in the world, according to Bassett, and operates six plants in British Columbia, where raw materials are abundant.

Forests in British Columbia have suffered from a serious invasion of mountain pine beetles, which have devastated the pine tree population. Because beetle-killed timber tends to develop cracks, it cannot be used for sawmilling without creating significant waste wood, but it is suitable for pelletizing. When harvesting beetle-killed timber, the resultant cleared areas promote new timber growth and reduce methane emissions from the rotting residue. This is only possible if the extracted beetle-killed timber finds an economic home, which it can in the pellet mills.

It is important to understand the environmental impact of the pellet combustion process. “The pellet industry has good green credentials,” Bassett says. Unlike coal, when wood is burned, the carbon released is recaptured by photosynthesis, thereby closing the loop sustainably without atmospheric change, he adds.

The Canadian industry primarily sells pellets to utilities for power production, but pellets are equally useful in industrial or residential thermal applications. Bassett believes the pellet industry has the potential to replace hydrocarbons for heating purposes, especially in remote areas, or in areas that are off the gas grid. 

The bottom line is that, “energy policy means making tough decisions, weighing costs and benefits and even judging the next turn in the financial road,” according to Pinnacle. “Pellet fuel can put North America ahead in all those areas. It will encourage the economic and energy independence of your communities, reduce costs and clean the air.”

Robust Canadian Industry

North America is leading the pellet export race, with Canada and the U.S. surpassing Sweden as leaders in pellet production capacity. With strong global demand for wood pellets in Europe due to government initiatives, Canadian capacity has risen sharply. “Capacity has grown more than one-third over the last year, from 2 [million] to nearly 3 million metric tons,” Murray says. 

In 2010, Canada had 30 operating pellet plants and 24 in the construction or development phase. The country produced about 1.5 million metric tons of wood pellets in 2010, with British Columbia accounting for 64 percent of that total. Today, the country has 37 pellet plants in operation.

An internal dichotomy exists between the pellet industries in Western and Eastern Canada. Plants in the West focus on industrial pellets for export from the British Columbia ports of Vancouver and Prince Rupert to Europe and Asia, and plants in the East market their pellets locally and in the Northeast U.S. 

Murray notes that a 1 million metric ton pellet capacity in the East competes for 100,000 metric tons in demand. Most of the product is bagged and used for residential heating. Only three of the 21 plants in Eastern Canada ship overseas from ports in Halifax, Nova Scotia, and Belledune, New Brunswick.
Operating in the far western expanses of Canada, Pinnacle produces and exports 1.1 million metric tons of wood pellets annually, according to Bassett.

Policy and Pellets

Pinnacle and other Canadian pellet manufacturers are well-aware that the new demand is being triggered by energy policy. Europe is leading the way, using sweeping national policies to reduce greenhouse gas (GHG) emissions, setting a goal of producing 20 percent of its energy from renewables by 2020.

Meanwhile, North American governments have been slow to introduce national renewable energy policies. North America is highly reliant on fossil fuels and is resistant to change. “It is a lifestyle issue,” Murray says.

The U.S. oil industry is huge, with large companies employing significant numbers of people. The companies also utilize serious lobbying power and dollars to expand their business. Government subsidies for fossil fuels alone substantially outnumber revenues from the pellet industry. Murray also believes many in North America don’t take global warming seriously.

The Canadian government has recently taken steps in the right direction with a policy to reduce the use of coal and convert to biomass fuels and natural gas. To stay on top of technology, the WPAC has spearheaded an investigation and study into available coal alternatives such as cofiring and torrefaction. 

As Canada and the U.S. initiate sustainability directives, Murray predicts that demand for wood pellets will increase in domestic markets. Pellets may be the best way for countries to satisfy policy requirements in a cost-efficient way. They are also easy to transport and store, and require minimal technology and modification for coal conversion purposes. 

Canadian Exports

To satisfy government emissions directives across the Atlantic, experts have projected that European wood pellet demand could increase from nearly 10 million metric tons in 2009 to more than 50 million by 2020, according to the WPAC. Murray warns, however, that forecasting future European consumption may prove difficult because it’s not clear yet how the reduction in national deficits will impact renewable energy subsidies. 

What is clear, however, is that European demand is strong, and Canadian companies are trying to capitalize on their established export capabilities.   Murray says Canadian pellet exports to Europe currently consist of 1.7 million metric tons annually.

European countries use pellets for power and thermal applications with Belgium, the Netherlands, and England as the main power markets, while Scandinavia uses pellets for area heating, often in conjunction with power generation. Germany and Italy are large markets for residential heating applications. 

Approximately two-thirds of Canada’s total pellet production capacity is in Western Canada, where manufacturers can take advantage of backhaul rates, filling empty ships with pellets for export. Backhauling allows western producers to export at only marginally higher costs than eastern companies from Atlantic ports.

Because European pellet consumers prefer receiving small quantities at a time, pellets are transshipped, meaning they are off-loaded into smaller carriers, Murray says. The port of Rotterdam, Netherlands, Europe’s largest port, is one of the most popular transshipping locations. Murray says that significant amounts of cargo are processed at Rotterdam, specifically 430 million metric tons of dry and liquid bulk cargo, compared with the relatively small Canadian ports of Vancouver and Halifax at 75 million and 12 million metric tons, respectively.

Transportation and handling make up the highest proportion of the total wood pellet cost for producers.

Expanding Markets

By constantly targeting emerging markets such as Europe and most recently Asia, Canada is leading the pellet export race. The governments of South Korea and Japan recognize the need to reduce GHGs and are setting environmental policy that is more advanced than in North America, thereby fostering pellet demand.

Although China is behind in emission reduction legislation, Murray says that Canadian companies have had early discussions with the highly industrialized country, which could also provide potential sales for pellet producers.

To stay on top of the market, Murray and the large wood pellet producers traveled to South Korea to promote and gauge the country’s interest in Canadian wood pellets. 

South Korea is committed to reduce GHGs 30 percent by 2020. The country’s energy target is 10 percent renewables by 2022, which could translate into more than 4 million tons of wood pellets. Korea is the 10th largest energy consumer in the world, ranking fifth in oil and second in coal imports. Its high coal consumption makes cofiring with wood pellets an excellent way to meet the country’s emissions directives.

British Columbia is the closest province to Korea, and it is twice as far from the Vancouver port to Rotterdam than to South Korea. Pinnacle understands the potential for pellet imports to Asia, and Bassett expects increased trade activity in Korea, Japan and even China.

Author: Matt Soberg
Associate Editor, Biomass Power & Thermal
msoberg@bbiinternational.com
 (701) 746-8385