Clash of the Titans
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©2016, Forest2Market, Inc. CLASH OF THE TITAN THE COMPETITION BETWEEN THE PULP & PAPER AND THE ENERGY INDUSTRY FOR WOODY BIOMASS IN THE US SOUTH.
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Transcript of Clash of the Titans
©2016, Forest2Market, Inc.
CLASH OF THE TITANTHE COMPETITION BETWEEN THE PULP & PAPER AND
THE ENERGY INDUSTRY FOR WOODY BIOMASS IN THE US SOUTH.
©2016, Forest2Market, Inc.
WHO AM I?
Carl Dahl • Invented the kraft pulp
process in 1884
• First US kraft mill:Pensacola, FL in 1911
• Same basic process used in most all pulp mills today
©2016, Forest2Market, Inc.
WHAT AM I?
The Recovery Boiler Equipment revolutionized the pulp and paper industry.
Invented by G.H. Tomlinson 1931
©2016, Forest2Market, Inc.
SOUTHERN INDUSTRY TOOK OFF
US Pulp Fiber Consumption1980-2007
Source : FRA and F2M
180
200
220
240
260
280
1980 1985 1990 1995 2000 2005
mill
ion
gree
n to
ns
©2016, Forest2Market, Inc.
WHAT’S THE POINT?
The pulp and paper industry is OLD.• The first suppliers are still in business
The pulp and paper industry is ENTRENCHED.• Long-term relationships abound
The pulp and paper industry OWNS THE SUPPLY CHAIN.• They receive 9.5 million trucks of trees annually• $10 billion business
©2016, Forest2Market, Inc.
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WHAT’S NEW? THE GREENING OF THE WORLD
©2016, Forest2Market, Inc.
US SOUTH DEMAND
Tons of wood required at various co-firing rates
-1,0002,0003,0004,0005,0006,0007,000
FL GA NC SC VA AL MS TN AR LA OK
tons
x 1
000
1%5%
Based upon current technology and estimates, every 1% of co-firing requires 10MM tons of wood.
©2016, Forest2Market, Inc.
EUROPEAN DEMAND
To meet green energy targets of 20% renewables by 2020, the UK must import 20 million tons of pellets annually.
If 1/3 is sourced from eastern US, then 8-12 new pellet plants are needed.
Total EU demand is expected to be 120 million tons by 2020 - more than 10x the world’s installed manufacturing capacity.
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©2016, Forest2Market, Inc.
WHY THE US SOUTH?
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©2016, Forest2Market, Inc.
PULP AND PAPER
Renewable Energy
10
Economic drivers: GDP, demographics, population growth
Largest producer of biomass energy in US
Conflict: Customer of utility; compete for same raw material - woodfuel
Economic drivers: none - mandate driven
Highly regulated and subsidized
Conflict: Vendor to pulp/paper mill; compete for same raw material - woodfuel
©2016, Forest2Market, Inc.
PULP/PAPER MILLS HAVE A STRONG DESIRE TO LIMIT
COMPETITION FOR WOOD FIBER
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Fixed mill locations
High capital investment
No new greenfield permits likely
Wood fiber makes up 25-40% cost of goods sold
Earnings sensitive to movement in raw material price
It’s a good business!
©2016, Forest2Market, Inc.
US PULP/PAPER MILLS HAVE A STRONG WORLDWIDE
COST POSITION
12
©2016, Forest2Market, Inc.
CURRENT ECONOMICS FAVOR PULP MILLS OVER BIOENERGY
MARKETS
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Southern Bleached Softwood KraftPrice: $1,000 per ton
Cost : $670 per tonManufacture - $500 per ton (includes woodfiber)G&A - $50 per tonDistribution - $70 per tonDepreciation - $50 per ton
Profit: $330 per ton
©2016, Forest2Market, Inc.
US ENERGY ECONOMICS
Bioenergy is not terribly competitive: • 25-35 MW plant - $0.13-0.16/KwH
• 50 MW plant - $0.11-0.13/KwH
• 100 MW plant - $0.10-0.12/KwH
• 300 MW plant - $0.09/KwH (maybe?)
Wholesale power rates in US are $0.06-0.12/KwH.
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©2016, Forest2Market, Inc.
ECONOMICS - PELLETS TO EU
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Delivered wood cost 30 USD / Ton
Equivalent dry fiber cost in pellets 68 USD / TonneManufacturing & transportation costs to port 67 USD / Tonne
Total Cost - FAS 135 USD / Tonne
F2M Analysis of Pellet Costs
Forest2Market estimates that pellets manufactured in the US South and shipped to Europe are currently a break-even proposition.
• 350,000 tonnes production ($85 million in capital)• Rail pellets to port • European customers• Based upon March 2007 ENDEX pricing, approximate price FAS US
Port is 130 USD/tonne
©2016, Forest2Market, Inc.
ECONOMICS – PELLETS TO EU
Even with economic disadvantage, new demands are undeniable. Forest2Market estimates that pellets manufactured in the US South and shipped to Europe are currently a break-even proposition.
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• 350,000 tonnes production ($85 million in capital)
• Rail pellets to port • European customers• Based upon March 2007
ENDEX pricing, approximate price FAS US Port is 130 USD/tonne
©2016, Forest2Market, Inc.
EXPORT PELLET MARKET IS PORT DEPENDENT
Where are the pulp mills? Near ports.Only a handful of US ports have the infrastructure to accommodate wood pellet exports
• Depth
• Port storage and handling
Favorable growth/drain ratios in surrounding timber basin
Space for expansion
Favorable freight rates to EU How will it play out?
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©2016, Forest2Market, Inc.
TWO-TIERED MARKETS
Pulp and Paper
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Export-driven coastal markets near deep water ports with bulk handling capabilities.
Domestic market will likely be more biomass/bioelectic centric.
Will become increasingly effective at acquiring subsidies to offset effects of new demand
Grades will change• Uncoated free sheet (copy paper) demand will continue to erode• Fluff pulp and containerboard demand will increase
©2016, Forest2Market, Inc.
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CONTACT
Read Clash of the Titans: Competition for Woody Biomass in the US South.
Forest2Market15720 Brixham Hill Ave
Suite 550Charlotte, NC 28277
