‘Wood Pellets – The Bioenergy Feedstock Solution? Global market, players and trade to 2015’

Wood Pellets

Wood pellets are underpinning the emergence of a new commodities business in biomass

Pöyry Forest Industry Consulting, London, 30 November 2009 – Wood pellets are underpinning the emergence of a new commodities business in biomass. The key driver is bioenergy and Pöyry expects double digit growth in pellet markets over the next five years.

These are the main findings of the study ‘Wood Pellets – The Bioenergy Feedstock Solution? Global market, players and trade to 2015’ published by Pöyry Forest Industry Consulting, a leading global expert in bioenergy and biomass procurement strategies.

The wood pellet market is immature and the reliability of data on trade, prices, production capacity and actual production varies considerably between countries. Through this study Pöyry hopes to establish an authoritative base of reliable data and analysis which can be used for strategic decision-making by existing or prospective market participants.

Marek Guizot, UK Head of Forest and Wood Supply Strategies, says: ‘Wood pellets have been identified as one of the fastest growing bioenergy feedstock markets, and also one where it is challenging to obtain reliable information. Pöyry has therefore decided to provide what is probably the first comprehensive strategic review of the global wood pellet sector.’

The global wood pellet market is and will continue to be a growth area. The current and future demand for wood pellets is strongly driven by the world’s need to develop renewable forms of energy and reduce greenhouse gas emissions. Global demand for wood pellets reached nearly 12 million tonnes in 2008 and is worth approximately EUR 2 billion. Europe and North America accounted for 97% of global demand. The market has grown rapidly (CAGR 27% in Europe and 17% in North America from 2005 to 2008). However, these growth rates will slow as markets mature. Pöyry predicts that by 2015, global pellet demand will almost double, reaching approximately 24 million tonnes (CAGR of 10.5%).

Development of the European wood pellet market has been largely driven by political targets to increase renewable energy usage. Such policy will continue to play a crucial role in the development of pellet markets in EU countries, and is expected to become a similarly important driver in North America.

There are two main end-use segments: residential and industrial. The residential pellet business is local with regional trade, while industrial pellets are traded globally. Future trade flows will include industrial pellet shipments from Australia, South America and South Africa.

Increasing demand for pellets in Europe and this year's decrease in ocean freight costs have created new opportunities for producers to export pellets from the US South East and recently Australia. However, prices for industrial pellets (which are considerably lower than residential pellets) have not risen greatly, and margins for many producers are under pressure because their raw material costs (sawdust, woodchips or in some cases logs) have risen. Logistical costs remain a threat, and are one reason for the recent closure of Dixie Pellets in the US (550,000 tonnes per annum capacity). An interesting development to watch will be torrefied pellets, which deliver significant logistical benefits compared to conventional wood pellets.

 ‘The wood pellet market is attractive, but highly complex’, remarks Ania Krolak, the study Project Manager. ‘It has attracted a high level of investment from both existing players expanding their operations and newcomers’.  However she cautions that there are threats as well as opportunities in this business.

Hannes Lechner, UK Head of Bioenergy, says: ‘Compared to other forms of biomass, such as woodchips, the main advantage that wood pellets offer is the significantly higher energy content per unit of volume. This allows for greater transport efficiency over longer shipping distances, an advantage which could increase in importance as the sustainability or “carbon footprint” of such long distance trade routes’ comes under the spotlight.

Another key advantage is the ease with which pellets can be incorporated into the existing coal-based power generation infrastructure. Pellets can typically be burned alongside coal with relatively minor modifications or capital outlay.

Pöyry has carried out extensive primary and secondary research into the wood pellet sector. The primary research consisted of a large number of discussions with key industry players and participants along the whole global supply chain (pellet mills, pellet users, OEMs, traders) and various industry sources. As well as a review of the current and future global wood pellet business, the study also provides detailed country profiles for 27 major and emerging markets.

For further information about the study and business opportunities in the wood pellet market please contact:

Marek Guizot, marek.guizot@poyry.com, tel: +44 20 8770 3218

Ania Krolak, ania.krolak@poyry.com; tel: +44 20 8770 3215

About Pöyry Forest Industry Consulting and Pöyry Group

Pöyry Forest Industry Consulting has been actively following developments in the bioenergy area and has become one of the most authoritative sources of knowledge about biomass and its use for renewable energy generation. Pöyry Forest Industry Consulting is part of the Pöyry Group.

Pöyry is a global expert in management consulting and engineering. We offer our clients in-depth industry expertise, innovative solutions and lifecycle engagement. Our knowledge extends across hydropower, oil and gas, power and heat, renewable energy, pulp and paper industry, chemical process industry, transportation, water and environment, and construction services. We have about 7,000 experts in 49 countries. Pöyry PLC is listed on NASDAQ OMX in Helsinki. For more information about Pöyry, please visit www.poyry.com.