Net zero: Raw material markets in southeast US for woody biomass

Author Argus

Join Argus Biomass Markets editor Erisa Senerdem and Elizabeth Woodworth, Interim Executive Director at the US Industrial Pellets Association (USIPA) as they discuss the raw material situation in southeast US, upcoming sawmilling capacity in the region, the largest risks to the forestry sector in North America – including impact from climate change and land use change, the cascading principle, and the future of the wood pellets sector.            Recorded 26/01/24


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ES: Hello, everyone, and welcome to this "Biomass" podcast. My name is Erisa Senerdem. I am editor of the Argus Biomass Markets report, and today I'm very excited to announce that we are going to talk about the feedstock situation in the United States. And it is a great pleasure for me today to have Elizabeth Woodworth as my guest. Elizabeth is interim executive director of the U.S. Industrial Pellet Association or USIPA. Hi, Liz, and welcome to the podcast.

EW: Hi, Erisa. It's an honor to be here with you.

ES: Thanks so much for accepting the invite, and I'll dive straight into the topic with a question about how the U.S. woody biomass feedstock is spread geographically throughout the U.S.

EW: Sure, so the majority of industrial pellet production is found in the U.S. Southeast, primarily because of its integration with the region's really extensive wood fiber supply chain. This has historically been a huge area of wood export regardless of what the form of that wood is. The wood pellet industry developed because of the abundance of sustainably managed forest products, infrastructure, the supply chain infrastructure, and certainly an experienced workforce. And if you live anywhere between Virginia and Texas, you live in the wood basket of the United States. That area alone produces nearly 20% of all the world's wood products. And when you think about U.S. forests, I think it's important to remember the scale of U.S. forests, right? We have more than 330 million hectares of forests alone in the U.S., which is about 80% of the geographic area of Europe. You know, forest trees and wood products sequester, you know, anywhere between 11% and 14% of our U.S. GHG emissions annually. And this forest area has remained stable over the past 100 years or more even while our population as a country has more than tripled. And then our southern forests, and particularly in the Southeast U.S., are increasing. They have been for the past 50 years. So it's important to remember just the scale of the forests that we have, and, again, the majority of those forests are owned by private landowners who want to take care of their land.

ES: Does this then make sourcing woody biomass from the Southeast U.S. cheaper in a way as compared to other regions?

EW: Well, wood pricing is dynamic. And so you can say one thing one day and it'd be different the next. However, I will say that due to the climate, due to the rate of growth that the U.S. Southeast produces wood that can be used in any number of markets more quickly than slower-growing, colder climates, and so the Northeast and other areas that are north of the Southeast may have slower-growing timber, very strong markets, but for different reasons.

ES: I also was curious to know about how the abundance of feedstock, particularly in this region, that affects investments in the bioenergy, but also the wider forestry sector.

EW: I can definitely say that the pellet industry benefits from increased access to sawmills and certainly the byproducts that those sawmills generate. It's a great relationship because pellet producers can take a lot of the waste material that would otherwise be difficult and certainly costly for sawmills to dispose of. I would say that the growth continues for Southern U.S. sawmills, certainly with expansions, reopenings, greenfield projects, and that, of course, includes an influx of investment from all sources, including Canadian sawmills into the Southeast. But it's a very dynamic market, and everything is interrelated. So if you see an increase in housing starts, you'll see an increase in sawmill production, right? And then ultimately an increase in sawmills themselves. I think I was looking at Forisk, which is a consultancy in forest research. The Southeast could add an additional 4 billion board feet of softwood sawmill capacity. Softwoods are primary feedstock, and so we do see increases in sawmilling for those wood types.

ES: There is a correlation between the upstream in forestry and then the biomass or bioenergy sector as well. And do you expect this increase to also attract more investment in the field of wood pellet production?

EW: I guess, to best comment on that, it's really important to understand that investments in new production capacity, specifically for pellet production capacity, are really primarily driven by an increased demand for wood pellets globally. So, you know, historically, all of the major players producing members of USIPA have built their plants around long-term offtake agreements. When a pellet producer builds a plant, most of the new capacity of that plant, even before commissioning, has already been under contract, right? The investments are being made because the market is already there and growing and we need to fulfill that market.

ES: Do you see any differences in forest management and harvesting practices between the U.S. and Canada, which are actually two big wood-producing regions at a global scale?

EW: Yes, well, our friends in Canada have an incredible forest products industry as well and a long history of sustainable management practices. I think, to comment on Canada, you'd be better off looking towards the Wood Pellet Association of Canada or the Forest Products Association of Canada for specifics. But I can say, you know, we're all experiencing the impacts of climate change, catastrophic wildfires, beetle outbreaks, warming temperatures, other challenges. I would say that Canada has been under extreme pressure on these challenges in the recent years. And in the Southeast U.S., while we do have related challenges, our most significant threat to our forest is land use change from development and urbanization. That is the number one threat to our forests. The other thing I want to comment on is that the pellet industry in the U.S. Southeast relies on wood waste. So that might be a treetop, that might be branches or what's called slash disease trees that the lumber industry rejects or small-diameter trees that are thinned out for the health of the larger trees in the forest. You know, a lot of people misunderstand. They see a truck going into a mill, and they think it's a bunch of whole trees when in reality it's maybe the top of a 100-foot tree that might be 30 feet long, but it's too thin or too spindly to be cut into to sawtimber, and the bottom of that tree has gone to other markets for solid wood products. Pellet feedstock in the South is derived from right now about 70% wood waste. So that might include sawmill residuals, logging residuals, chips from the in-forest harvest, and about 30% low-grade pulpwood, and so that would be wood that would not be going into a sawmill for solid wood products.

ES: That brings to mind another very important discussion that's been happening, especially in the European Union, in recent years, which is around the cascading principles and who has the right to use which wood. I wonder, Renewable Directive Amendments, this has now been plugged into law, whereas the difference between the EU and North America is that, in North America, it's a lot for the market to regulate this. I was just wondering your view on this.

EW: Yes, of course, well, you might be surprised to hear me say that the cascading principle is alive and well in the U.S. It actually works beautifully, but it's market-based rather than regulated. So no one is motivated to forego any profits by turning higher-value wood that might go into telephone poles or construction lumber or flooring or veneer into pellets when you can make much more selling higher-end products like those I've just mentioned. As I mentioned before, the pricing varies, and it's dynamic, but largely you have maybe a price around $5 to $7 a ton for pellet biomass, for feedstock that would go into biomass, and something around, I don't know, $35 to $40 for sawtimber. So it makes absolutely no economic sense for a landowner or a wood broker to sell sawtimber into the pellet market.

ES: I also wanted to ask a very few questions about the wood pellet industry. What is the wood pellet production capacity right now, and how do you expect this to evolve in the near to mid-future, let's say next five years or so?

EW: Sure. The 2023 numbers have not been finalized yet, but I think we are probably going to be around 10 million metric tons this year, all located in the U.S. South. The capacity reached a record last year, and I think we're set and poised to actually beat that record from 2022. We have new plants in the pipeline that could potentially add a million or more tons in the coming years. There's interest in expanding production on the West Coast.

ES: Lovely. And, last but not least, to ask about the world's largest wood pellet producer, Enviva, who has said that it is going through financial difficulties. First, I wanted to ask if there is any updates on that direction and, second and most importantly, there have at times been worries that this might impact the pellet sector's future at a global scale. What kind of future do you see lying ahead of us for the wood pellet industry?

EW: Sure. Well, I can tell you without any doubt that Enviva is the best source of information on the state of their own business. So I would direct you to their statements that they've made over the past few months. But, more broadly, you know, our sector is in an incredibly strong position. Like I just mentioned, 2023 looks to be another record-breaking year for U.S. pellet exports. These exports are now valued at approximately $1.5 billion. We expect this growth to continue, certainly driven by demand in Asia, Asia-Pacific in particular. I do think that with the growth of solar and wind energy, which we're seeing by leaps and bounds, wood bioenergy will also benefit from that growth because pellets can provide uninterrupted power at any time at large scale to complement when the wind doesn't blow or the sun doesn't shine and at a comparatively low cost. So I do see a continued synergy with wind and solar. And then we're also seeing momentum continue to shift to the development of high-value applications to decarbonize sectors like heavy industry, transportation, construction, you know, these hard-to-abate industries that have really few alternatives to lower their emissions. Woody biomass and pellets in particular are homogenous. They're easy to transport. We have the bioenergy sector to thank for establishing an incredible supply chain, a sustainable supply chain, a source of sustainable raw materials that can then go into many different applications, whether it's advanced biochemicals or advanced biofuels. The sustainable aviation fuel sector is growing, and we see incredible opportunity with that sector. So I am incredibly optimistic. I believe in this industry to make a difference in climate change mitigation, in making a difference to decarbonize our world, which is so desperately needed. And so, yeah, I'm not worried about this industry at all. I think we have a great story to tell.

ES: Yeah, thank you, Liz. And we look forward to see how biomass will continue to be used not only by power-generating, heat-generating sectors, but also other hard-to-abate sectors and hopefully make a difference in terms of them defossilizing. I would like to thank you so much for accepting this invite. It's been an absolute pleasure to talk to you.

EW: Thank you so much, Erisa. I really appreciate it, and I'm honored to be invited. So thank you very much.

ES: Thank you, Liz. And, for the audience, please continue to follow this space. Thank you very much for listening, and see you soon.