Expanding demand and supply perspectives for the industrial pellet markets

Arnold Dale Ekman & Co AEBIOM Conference Brussels, Belgium June 2013

Ekman is one of the worlds leading sales and marketing organizations, focusing on the global forest industry.

Ekman at a glance

Pulp

Paper & Packaging Incorporated in 1802

Recovered Materials

Bioenergy

260 employees 40 locations

Represented in 100 + countries

+ 3 400 000 tons/year

Business concept

To add value to the supply chain for forest related products worldwide.

Bioenergy at a glance
9 employees in Sweden, Denmark and Latvia Trading wood pellets and PKS since 2008 A leading biomass trader in Europe Exclusive agents for 900,000 ton wood pellet plant in Vyborg, Russia Regular trade flows of wood pellets and unrefined wood fuels Expansion plans include Asia and the Americas

Expanding demand and supply perspectives for the industrial pellet markets
Arnold Dale Ekman & Co AEBIOM Conference Brussels, Belgium June 2013

The demand will be in countries with no forests The supply will be from countries with forests
Russian Forest 7 762 602 km2
Pellet exports to EU during 2012 900 000 t

Canadian Forest 3 1010 340 km2

Pellet exports to EU during 2012 1 650 000 t

American Forest 3 030 890 km2

Pellet export to EU during 2012 2 000 000 t

EU Imports of wood pellets from non EU countries during 2012 totaled about 5 million tons (Ekman estimate)
Sales by origin
2.70% 1.60% 2.50% 38% 18% 2% 0.05% 3.00% USA Canada Russia Ukraine South Africa Croatia Belarus Australia Others

32%

The south east USA will be the global leader in wood pellet production
Drax Power recently announced plans to build 2 450 000 t pellet plants in the southern USA and a harbour terminal on the Mississippi near Baton Rouge. Total investment $230 million German Pellets completed a 500 000 t pellet plant in Woodville Texas now planning a 1 million t plant in Louisiana Enova announced plans to build three 450 000 t capacity wood pellet plants in Georgia and South Carolina Fram Fuels have commenced construction of 500 000 t wood pellet plant in Georgia increasing total output to 900 000 tons Enviva building two 500 000 t wood pellet plants in Southampton and Northampton North Carolina will increase total volume to 1.6 million tons The Westervelt company recently completed a 280 000 t wood pellet plant and intend to increase output to 1 million tons

Canada has several options not just the European market

WPAC Wood Pellet Association of Canada expect exports to be 1.65 million tons during 2012 Korea - could use up to 5 million tons of pellets by 2020 logistics will favour Asia but a large proportion could be supplied from Canada WPAC - predicts the development of an internal market that may consume up to 5 million tons of wood pellets by 2019 WPAC actively working to help producers in eastern Canada consolidate production volume in order to increase exports Japan - needs to fill the gap left by the closure of nuclear power plants, but there is a lack of clarity how this will be achieved Europe - exports to Europe are expected to increase by about 2 million tons by 2016

The UK alone will radically redraw the pellet map

(source: John Bingham-Hawkins Wright)
Drax Power plans to convert three of its six 660 MW units to 100% wood pellet firing (total 2 GW) first conversion completed in 2013, second in 2014 third in 2017 E.ON Ironbridge will temporarily convert 1x440 MW This unit will close in 2015 RWE npower has applied to re-permit the Tilbury power plant (750 MW) expected 2015? Eggborough Power 4x500 MW expected 2016? International Power - Rugeley 2x500MW expected 2015? Curren - RWE recently completed the purchase of Lynemouth power station 420 MW which will be converted to become a dedicated biomass plant expected 2015? Rugely International power intend to covert and could consume up 3 million tons In addition to the above several new dedicated biomass plants will be built

The continued growth of the European wood pellet market

DenmarkDong energy has announced the conversions of both Aalborg and Aarhus to wood pellet use this together with other projects in Scandinavia will create an extra 2.5 million tons of demand Holland An ambitious plan for 9% of all electricity generation to be provided by solid biomass by 2020 this amount would equal 6 million tons of wood pellets but there is uncertainty about how this will be achieved Belgium Currently utilise large amounts of wood pellets and this will continue with an expected total use of 3 mill tons by 2020 Germany Despite the closing of all nuclear power plants there has been no rush to replace lost output with biomass due to lack of support France There are many plans for the use of biomass in heat and power installations Spain Due to the economic crisis the government has withdrawn subsidies once again disappointing investors Poland A lack of political clarity about the use of biomass. Utilities burning biomass expected a new policy to be in place by 2013. That looks likely to be delayed by 6-12 months

Development of the wood pellet market in Korea

(Source IEA Bioenergy) In 2008, the Korea Forest Service began subsidizing the purchase of domestic pellet boilers by 60% to 70%. About 600 boilers were installed in 2008, 3,000 in 2009, and 4,000 in 2010. About 6,000 boilers are expected to be installed in 2011. In 2010 commercial greenhouse operators began using pellet boilers for heat. Pellets are not yet used for power generation or for any other industrial purpose. Wood pellet imports to Korea have almost tripled over the past three years, from a little over 7000 tonnes in 2008 to more than 20,000 tonnes in 2010, mainly from China, Vietnam and Malaysia. However, it is unclear how much of this has been used for energy purposes, and how much for other purposes (such as animal bedding). The pellet market is expected to grow rapidly starting in 2012 due to the governments newly introduced renewable portfolio standards requiring power companies to increase the proportion of renewable electricity production. It is expected that at least 60% of renewable energy will be from pellets.

Potential wood pellet demand in Korea

(Source IEA Bioenergy)
South Korea presently uses about 75 million tons of coal per year. If some 2% of this is converted to pellets by 2012 at a ratio of 1.5 tons of pellets per ton of coal replaced, this would mean a market of 2.25 million tonnes of pellets. By 2020, after accounting for growth in energy consumption and ever increasing renewable energy requirements, the demand for pellets could exceed 15 million tons per year from the power sector alone. According to the Korean Forest Service (KFS), the theoretical domestic maximum production potential in Korea could amount to about 1 million tonnes. The KFS expected a total demand of 5 million tonnes in 2020, which would still require imports of up to 4 million tonnes. The KFS plans to secure wood pellet supply from Indonesia, New Zealand, and Myanmar by inducing them to install pellet operations. Indonesia is making available 200,000 ha of land for plantation to produce wood pellets for export to Korea, based on the KoreaIndonesia summit meeting (March, 2009)

Korean Imports from Russia during 2012 totaled 87350 t

(Source: NLRI Russia)

45000 40000 35000 30000

25000
20000 15000 10000 5000 FOB Vanino CIF Quangyang

0
Samsung corporation Kaimar Top Infra Green

Expanding demand and supply perspectives for the industrial pellet markets - Conclusions
If there is a demand then supply will always follow The international wood pellet market will continue to grow more rapidly than at present with the Americas becoming the main wood pellet producing region The UK will become the largest consumer of wood pellets with substantial growth expected in many other countries The industrial wood pellet market is a politically driven market and this is both good and bad Sustainability will become even more important and an industry wide standard approach is required Large industrial wood pellet producers will start to sell in to the European residential wood pellet market

ONE OF THE WORLDS LEADING SALES AND MARKETING ORGANIZATIONS FOCUSING ON THE GLOBAL FOREST INDUSTRY.

TWO organisations - ONE goal => Market expansion of European pellets

Group of national pellets associations ENplus certification

Group of EU pellet companies Representing EU pellet producers >< EU utilities Cooperation with US and Canadian producers Common issues Pellet sector safety Statistics Communication

TWO organisations - ONE goal => Market expansion of European pellets

Gilles GAUTHIER EPC General Manager www.pelletcouncil.eu

Fanny-Pomme LANGUE EIPS General Manager www.industrialpellets.eu

Barking up the wrong tree!

World demand for tissue paper rose more than 4% in 2011 to 30.5 million tonnes while it soared by 18% to 7.3 million tonnes in China. It takes 4.5 m3 of green wood to produce a ton of tissue paper whilst it takes 2.15 m3 to produce a ton of pellets Assuming world paper and paperboard production grows by 2% per year through 20112021 and that the share of recovered paper is held constant at 55%, demand for market pulp could increase by around 30 million tonnes or 50% over that period.