The wood pellet market could remain undersupplied even if just a part of the overall potential demand from new industries materialises, delegates heard at the annual US Industrial Pellet Association (USIPA) conference in Miami, Florida, last week.
The market will be "grossly undersupplied" even if only 25pc of potential projects from new consuming industries is developed, Tom Reilley, chairman and co-founder of Highland Pellets said at a panel discussion with pellet producers.
The opportunities currently facing the market are "incredibly exciting, profound in nature… [although] half will never evolve, maybe 25pc will evolve much slower and with less magnitude", Nicholas Dottino, chief executive officer of Graanul Invest, said. "But, even if 25pc evolves, it is incredibly positive," he added.
"We are finally seeing, potentially, [companies/sectors] willing to pay a price which would bring out a torrefaction supply chain. I can see the market for processed heat in the short term could happen within one to three years," Todd G Bush, head of North America at producer and trading firm CM Biomass said.
"[We] are starting to see lower volume buyers in different markets [securing] shorter term contracts, but this shows that there are pellets to be bought in the market as a whole," Bush said. The new markets will need to be educated on areas such as how pellets can be imported from the US, he added.
Regarding new production opportunities in the US, logistical cost is always a consideration, Matt White, executive vice president for North America pellet operations at utility and pellet producer Drax Group said. While inflation was a key challenge, there was also a need to care about reputation and managing the impact of the industry, he added.
Bush also said labour and healthcare costs could pose an issue. "We have logistic costs, but we are used to that. We hedge them out as much as possible."
Regulatory and policy changes also pose challenges for the sector, the panelists agreed. Compliance issues such as with the forthcoming EU deforestation regulation (EUDR) will be something to watch, and could have a huge impact on the business, Drax's White said. "We need to make sure we have the right policies in place to use the right fibre baskets. The biggest opportunity for us is to show people what we do," he added.
"We will keep an eye on definitions and implementation [of regulation]. The supply chain we have developed is crucial for Europe, and to imagine it is not going to be what it is today is not feasible. There is a lot of work to be done," Thomas Meth, president and CEO of Enviva said.
