Pellet Market comparison to mainstream forest- ry, Canada’s pellet sector is boom- ing. Sure, maintaining a fibre sup- ply with so many sawmills down can be a challenge, and this winter was not as cold as many had hoped. Yet export markets are reliable and, given Europe’s aggressive re- newable energy targets for 2020, should be growing. Shipping costs are under control compared to years past, and Ontario Power Generation (OPG) looms large on the ho- rizon as a potential mega-client. The sec- tor’s growth seems certain, with new plants and expansions announced monthly (see our map of pellet plants and projects dis- tributed with this issue). Don’t worry, be happy, right? Despite all the signs of a vibrant indus- try, there are some danger signs. Principal among these is the astounding lack of mar- ket diversity. In fact, the market distribu- tion model of Canadian wood pellets bears a striking resemblance to the Canadian lumber business that came crashing down in 2007 and has yet to recover. Like lum- ber and its obsession with the U.S. mar- ket, Canadian pellets are over-exposed to a single large market. Canadian domestic pellet consumption sits at just 5 to 7% of production while, thanks largely to a bur- geoning northeastern market, we now send as much as 10% of our production into the United States. The rest – a staggering 85% or so – still goes to Western Europe, a hun- gry but increasingly problematic market. Europe’s bulk pellet sector has been a solid market for well over a decade now, helping to establish our pellet industry de- 22 CanadianBIOMASS spite the vast shipping distances. With each passing year, however, this market looks increasingly fragile. It is a market based on the politics of global warming. Should the Europeans back off their commitment and heavy subsidies for reducing carbon emis- sions, this market would quickly evapo- rate. Beyond that political uncertainty lies a more traditional and even harsher reality: the threat of growing local competition. “Presently, the Netherlands, Denmark, and Belgium are the only three Euro- pean countries consuming more pellets than they produce,” says Gordon Murray, longtime forest industry consultant and financial advisor, and currently the acting executive director of the Wood Pellet Asso- ciation of Canada (WPAC). “All of the other European countries are at least neutral or produce more than they consume.” The bottom line is that the health of our massive and growing pellet industry de- pends on three coastal countries. As Mur- ray notes, we are not the only producers looking at these markets. “Norway is building an additional 450,000-tonne plant, and Russia is build- ing a 1-million-tonne plant. Georgia [state] has announced a 750,000-tonne plant, and Green Circle is building another 500,000-tonne plant [in Florida or Geor- gia]. It looks like the European market is MARCH/APRIL 2010
Canadian Biomass March/April 2010: Page 22
