PÖYRY VIEW POINT
GLOBAL MARKET, PLAYERS AND TRADE TO 2020
Pellets Becoming a
Global
Commodity?
Pellet supply and
demand, policies and
cost competitiveness
Perspectives on the
global pellet market,
2010-2020
Pöyry prepared a pellet multiclient report
in 2009 on the current state and expected
development of the wood pellets market up
to 2015. This first report established a base
of reliable data and analysis on pellet trade,
prices, production capacities and output
globally and at a country level.
Much has happened in the global pellet
market since the publishing of the first report.
The content of the report is still highly relevant,
however three important developments have
taken place since, leading Pöyry to expand
the analysis scope and extending the outlook
to 2020.
Firstly, even if wood pellets currently dominate
the pellet market, the importance of pellets
from agricultural residues is expected to
increase, particularly in Asian markets,
where local raw material availability is good.
Production technologies for torrefaction have
also reached a level where many players in
the market are now looking into the feasibility
of torrefaction as a long-term feedstock
alternative. Due to these developments, the
report’s scope has been expanded from
covering wood pellets only to now inluding
a global pellet market with agricultural and
torrefied pellets. Agricultural pellets have
regional importance particularly for the Asian
pellet markets, whereas torrefaction has
global relevance. The specific topics cover
raw material costs and availability, production
methods, product characteristics, logistical
considerations and suitable end-use markets
and combustion technologies.
2
Secondly, the policy developments in
parts of the world and increased visibility of
governmental targets such as the NREAPs
(National Renewable Energy Action Plans),
have shaped and shifted the expected
future demand for biomass. These plans
together with the policy development in
regions, such as the U.S., Japan and Korea
provide the additional information required
to expand the pellet market prognosis from
2015 to 2020. The report also discusses the
steering mechanisms of the relevant policy
instruments to the biomass markets in general
and their impact on the pellet markets and
paying capabilities of the different market
players in particular.
Thirdly, increasing production and logistics
costs as well as shifting market prices have
changed the regional cost competitiveness
for pellet producers, and the economic
tradeoffs between production costs and
delivery distances to end users / consumers.
These changes have been driven by
several cost components, e.g. raw material,
local energy and crude oil prices, thereby
influencing production and logistics costs in
different proportions on a global scale. The
report looks into the costs and market price
drivers, as well as the competitive positions
of different geographical regions in supplying
global demand.
Consequently, as pellets are becoming
increasingly viewed as a global commodity,
the report also addresses trade enablers
and inhibitors, as well as the forming of value
chains and distribution channels to both
industrial and residential markets.
CASE STUDIES
Pöyry has delivered consultancy projects within
the pellet sector in 2010 for most of the leading
companies in this sector as well as emerging
new players. These projects have been related
to a wide range of topics, e.g. investment
opportunities, cost competitiveness, markets,
price forecasting, manufacturing, feedstocks
and logistics. Most projects have focused
on wood pellets, however there has been
an increasing interest in the opportunities
of torrefaction, and in specific geographical
regions in agricultural biomass as a raw
material for pellet production.
Project examples:
• Choice of production location:
Identification and evaluation of pellet
production opportunities including market
strategy, business environment and cost
competitiveness analysis, country level
evaluation of wood markets as well as
investment viability in various locations
globally in relation to the European end user
markets.
• Due diligence: Due diligence of wood pellet
production, including business case
assessment and sourcing, overall cost
competitiveness, evaluation of local and
global market outlook and business
development potential for investors,
producers and electricity and heat
off-takers.
• Investment feasibility: Feasibility analysis
of pellet and wood chip production facilities
and export logistics, as well as technical
and economical assessment of expansion
of an existing pellet production facility
relative to the market opportunity.
• New business development: Torrefaction
technology assessment and strategic
business opportunity evaluation.
EXAMPLE TOPICS
COUNTRY PROFILES
• Raw materials for wood, agricultural and torrefied pellets
• Production technologies for wood, agricultural and torrefied pellets
• Pellet end use markets: residential, commercial and industrial
• Relevant regulatory frameworks and policy instruments
• Renewable energy policies impact on pellet market development
• Pellet trade flows and value chains
• Global cost competitiveness
• Pellet pricing
• Country profiles
The first pellet multiclient report provided country profiles of 27 major
and emerging pellet markets on six continents. The country scope has
been expanded to cover more regional markets as well as torrefied pellets
and pellets from agricultural residues in addition to wood pellets. Each
country profile contains information of market and policy developments,
market segmentation, quality standards as well as information on the
largest producers and production site locations.
3
Selected
Key Findings
The current global market volume of biomass pellets of around
16 million mt/a is projected to increase to 46 million mt/a by 2020
(CAGR ~11%), representing a total market value of up to USD 8
billion (real 2010). Adoption of biomass pellets is largely driven by
policy and financial incentives in much of the world currently and
this will continue to be the case though increasing influence from
GLOBAL
fossil fuel prices will play a larger
rolePELLET
in thePRODUCTION
future. – 2015 AND 2020 OUTLOOK
Western Europe will remain the largest
consuming region (13 million mt/a), with
much of the growth being driven by use for
the production of electricity in the Benelux
and the UK. In addition, continued growth is
forecast for the residential and commercial
heating markets in Scandinavia and other
parts of Europe. Further growth is predicated
on a large gap between what is currently
used for biomass based energy generation
currently and what is outlined in each
country’s National Renewable Energy Action
Plan (NREAP) to come from pellets.
Although the largest pellet production capacities are forecast to remain in Europe –
a region with strong competition for raw materials – the growing demand will
increasingly be satisfied by imports from other regions which have surplus
biomass. China is unlikely to become an important wood pellet producer due to a
GLOBAL PELLET PRODUCTION - 2010, 2015 AND 2020 OUTLOOK
large raw material deficit. It is likely to focus on agricultural raw materials instead.
Western
Europe
North
America
Eastern
Europe
13.0
2.2
10.7
11.0
2.8
Russia
3.3
1.6
1.4
0.6
7.7
8.5
Japan & Korea
10.0
4.9
China
1.1
0.4
0.1
3.0
0.6
South
America
3.0
4.4
Oceania
0.1
0.2
0.8
0.4
Million tonnes
2010
2015
2020
In North America, in contrast to Europe, most
of the growth is predicted to come from the
residential heating market, largely driven by
the increasing cost of heating oil relative to
fuel pellets. Moderate growth is also forecast
in the industrial energy market though
this assumes an extremely minor role for
government incentives which could otherwise
greatly increase adoption of pellets.
GLOBAL PELLET CONSUMPTION – 2015 AND 2020 OUTLOOK
Western Europe will continue to be the largest pellet consumer in the next decade.
North
America
will see - growth
mainly
theOUTLOOK
residential pellet sector. The Asian
GLOBAL
PELLET
CONSUMPTION
2010, 2015
AND in
2020
countries have seen emerging use of pellets recently and this will continue.
Western
Europe
23.8
16.4
4.3
Russia
0.4
5.6
0.03
Eastern
Europe
10.8
North
America
3.4
China has appeared on the radar as a
significant future pellet consumer with the
addition of a great numbers of pellet plants
to the project pipeline. Most of the feedstock
requirement is forecast to be satisfied through
production from domestic agricultural and
processing residues such as rice husk and
so this growth is not expected to have a large
influence on international trade flows. China
3
0.6
0.05
0.05
China
0.8
10.0
Japan &
Korea
0.2
South
America
0.05
Million tonnes
0.12
5.5
3.8
3.0
0.6
Oceania
0.20
0.03
0.06
0.13
2010
2015
2020
5
WORLD PELLET TRADE FLOWS IN 2010
alone is expected to account for greater than
20% of worldwide demand in 2020 compared
to a negligible amount currently. This will really
close the gap in consumption between China
and current users such as North America and
Western Europe.
Western Europe has recently been the largest off-take market for wood pellets, with
total imports adding up to 2 million tonnes in 2010. Statistics indicate an Intratrade 2010
volume of wood pellets as high as 3.3 million tonnes.
PELLETEuropean
TRADE FLOWS,
3.300*
500
Transcontinental trade flows of pellets totalled
2.0 million mt/a in 2010 (including Eastern to
Western Europe), with nearly all of this between
North America and Western Europe. Relatively
minor amounts also moved from North America
to Asia, Canada to the US, and Eastern Europe
to Western Europe. All of these current trade
flows are expected to increase in magnitude
while trade flows are expected to emerge from
South America and Russia to Western Europe
as well as trade from Oceania to Japan and
Korea. Total transcontinental trade flows in
2020 are expected the reach over 18 million
mt/a, or about 40% of total production.
The other side of the pellet industry is the
residential market and this facet is highly
fragmented in most regions. These smaller
plants vastly outnumber larger ones by number.
They often utilize sawmill residues from nearby
wood products industries or are integrated
directly into a sawmill. Because of the various
markets to which these residues can be sold
and fluctuations in wood product demand and
sawlog supply, many of these pellet facilities
often run at rather low utilization rates. This
was very much the case during the economic
downturn of the previous two years. All wood
product manufacturing decreased, and
therefore, less residues were available to the
50
Trade flows (1,000 tonnes)
Current
Emerging
* EU 27 internal trade
PLANT SIZE DISTRIBUTION, 2010
16 000
14 000
Number of plants
673
12 000
143
10 000
(1,000 mt/a)
In order to supply this international trade in
biomass pellets, increasingly large pellet
manufacturing facilities have been built in
regions with high biomass availability to ship to
those with less. The first of these plants were
built in Western Canada (2001 - Premium
Pellets: 120,000 mt/a; 2001 – Pacific Bio
Energy: 130,000 mt/a; 2005 - Pinnacle
Pellets: multiple plants) in order to take
advantage of fibre made available by the
Mountain Pine Beetle infestations. Next, plants
were built in the south-eastern US to utilize
roundwood (2008 - Green Circle Bio Energy:
500,000 mt/a; 2008 - Fram Renewable Fuels:
210,000 mt/a) and residues (2008 - Dixie
Pellets/New Gas Concepts: 500,000 mt/a), and
Australia to make use of harvesting residues
from Eucalyptus plantations (2008 – Plantation
Energy Australia: 250,000 mt/a). Currently,
additional large plants are in varying stages of
development in Russia (2011 - Vyborgskaya:
900,000 mt/a), Eastern Europe, and South
America (2011-2015 - Suzano: 3X 1,000,000
mt/a). These are all designed primarily to feed
the growing demands of Western Europe but
much is likely to be destined for Northeast Asia
in the relatively near future.
400
1,100
500
8 000
44
6 000
4 000
2 000
5
2
0
<51
51-100
101-150
151-200
201-250
3
>250
Plant capacity size class (1,000 mt/a)
market. Couple this to the fact that a significant
number of pellet manufacturing facilities
focusing on the residential markets came on
line in 2008 and 2009 and it becomes clear
that currently this can be a difficult market to
be in.
As production conditions and end use markets
for the two different pellet classes differ, as do
the prices and their respective price outlooks.
Residential pellet markets are usually rather
regional and they are expected to remain this
way, though on average, prices are expected to
increase in Europe where the greatest number
of trades occurs. Industrial pellets prices are
more reminiscent of commodities, and are
therefore less regional. The prices for the
latter are predicted to remain relatively stable.
Large amounts of supply are predicted to come
on line from new regions while incentives in
Europe will both increase demand and act as a
sort of cap on what pellet consumers are able
to pay.
Pellet production technology is rather
standard; though there are alternatives for
many of the different processing steps (i.e.
drum vs. belt drying, flat vs. ring die). A
paradigm shift is not likely in the way that
pellets are produced though many companies
are working on making the process less energy
intensive.
Pelleting of torrefied biomass is a technology
which promises to increase the energy density
of biomass and improve cost efficiency.
However, according to Pöyry’s calculations,
the cost of transport would need to increase
significantly to make it feasible at current
production cost estimates. On the other hand,
torrefaction improves the fuel qualities of
biomass to the point that co-firing utilities may
be willing to pay a premium.
INDICATIVE DELIVERED COST FOR BIOMASS
18
400
16
6
US East
Brazil
Canada West
Forest Management
Infrastructure at site
Drying
Pelletising
Transport
35% Saving
50% Saving
60% Saving
Australia
Region 1
Region 2
Region 3
Region 5
Region 8
Torr. Pellets
Chips
Torr. Pellets
Region 9
Wood Pellets
Chips
Wood Pellets
Chips
Torr. Pellets
Torr. Pellets
Region 7
Chipping
Inland transport (100 miles)
Full shipping Distance (nm)
Wood Pellets
Chips
Torr. Pellets
Region 6
Wood Pellets
Chips
Wood Pellets
Chips
Torr. Pellets
Torr. Pellets
Region 4
Biomass delivered to mill
Pelleting
Shipping (incl. loading and unloading)
Wood Pellets
Chips
Wood Pellets
Chips
2 000
Torr. Pellets
Pellets
(Wood)
Pellets (Gas)
Woodchips
Pellets
(Wood)
Woodchips
Pellets (Gas)
Pellets
(Wood)
Woodchips
Pellets (Gas)
Pellets
(Wood)
Pellets (Gas)
Woodchips
Pellets
(Wood)
Woodchips
Pellets (Gas)
Pellets
(Wood)
Pellets (Gas)
0
Woodchips
2
0
NW-Russia
4 000
4
50
Baltics
6 000
8
Wood Pellets
100
10
Chips
150
8 000
Torr. Pellets
200
12
Torr. Pellets
250
10 000
14
Wood Pellets
gCO2e / kWh
300
12 000
Chips
350
14 000
0
Region 10
Capital costs
Heat treatment in port
REPORT NAME
REPORT NAME
There has been interest in agricultural
products for some time though very little
market penetration for the production of
pellets. Wood prices from traditional sources
are likely to increase and agricultural products
such as harvesting and processing residues,
coppice, and dedicated energy crops may
become more attractive as an alternative. They
offer the possibility to grow the feedstock closer
to the end use as well as a faster growth rate
on a given area of land in many cases though
combustion characteristics and chemical
properties are often less favourable.
The driving reason for the adoption of biomass
in general for the production of power has been
to reduce the GHG emissions from thermal
power plants. The main reason for pelleting is
to increase the efficiency though this does not
Shipping distance (nm)
20
450
Delivered cost CIF ARA (USD/GJ)
500
Wood Pellets
GREENHOUSE GAS (GHG) EMISSIONS OF BIOMASS SUPPLY CHAINS
necessarily decrease the GHG emissions as
compared in Pöyry’s case study. Of each link in
the supply chain, transport from production site
to end use remains the most influential though
even the pellets from Australia to Rotterdam
still meet the 60% reduction in emissions
compared to the European Union’s fossil fuel
comparator.
In conclusion, the fact is that pelleting adds to
the production cost of biomass fuels compared
to raw wood or wood chips, though increases
both the transportation efficiency and fuel
characteristics. As long as biomass fuels are
demanded in regions where the resource
is not available and the homogeneity and
feeding characteristics of pellets are desired,
pellet demand and trade will continue. The
magnitude of the growth for this market is
13
15Axxxxxx
11
15Axxxxxx
heavily dependent on the political will for
biomass energy and the associated incentives.
In addition, demand depends on the cost of
alternative energy sources.
There are some signs that industrial users of
pellets are beginning to integrate upstream
by building their own pellet mills in areas with
high biomass availability. This can assure them
supply security. In addition, many small pellet
producers are starting to either downstream
integrate to control their distribution or joining
with other pellet producers to increase their
market share at least regionally. This shows
signs of market maturation though, in most
markets, biomass pellets have not reached
the point of being a commodity due to differing
quality standards and a lack of transparency
due to relatively few trades per unit time.
Pöyry has extensive experience in the biomass-to-energy sector covering the whole value chain
from biomass sourcing, processing and logistics, heat and power generation, distribution and
energy market analysis, advisory and policy design. Through its global network, Pöyry has been
involved in an extensive number of projects in the pellet industry both engineering operations and
advising clients in areas such as market and procurement strategies, technology, business
processes, investment feasibility, competitiveness and pricing. Pöyry possesses the leading
know-how in the biomass-to-energy sector, enabling us to provide valuable insights and experience
to our clients.
For more information, please contact a member of the Pöyry Bioenergy Practice:
MAIN CONTACTS:
REGIONAL CONTACTS:
Hannes Lechner
Europe, Northwest
Tel. +44 20 8770 3214
[email protected]
Hubert Röder
Europe, Central and Eastern
Tel. +49 8161 4806 85
[email protected]
Manoel Neves
South America
Tel. +55 11 3472 6957
[email protected]
Andreas Teir
Europe, Nordic countries
Tel. +358 10 33 22840
[email protected]
Jonathan Rager
North America
Tel. +1 404 585 2116
[email protected]
Petri Haataja
Asia-Pacific
Tel. +65 6733 3331
[email protected]
www.poyry.com
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