florida energy summit dean mc craw
TRANSCRIPT
Woody BiomassFact vs. Fiction
Dean McCraw CF
McCraw Energy LLC
10/26/2011
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McCraw Energy LLCWe provide a variety of services for the bioenergy field. These include:
Assessment of forest inventories, including forest residue. Valuation of delivered bioenergy feedstocks. Long range planning, including assessment of options to increase
future feedstock supplies. Establishment of a bioenergy feedstock procurement
organization. This can include contract procurement or the training of personnel for your facility.
Contract production and/or delivery of forest residue. Design consultation on feedstock receiving facility. Contract operation of feedstock receiving facility. Consultation and/or contract establishment of energy tree
plantations and energy grasses. Business contacts with all major forest landowners in the
Southeastern US
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Background
• There is nothing new under the sun
• Renewable energy was all the rage from the mid-70’s to the mid-80’s
• The difference from then to now is that in the 80’s the Forest Products Industry was a leader and now it may be a victim.
• The main driver in the 80’s was energy cost savings. Today this can still be the case but politics now has a larger role than energy cost savings.
• New players are entering the market and competing in the pine pulpwood markets.
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Background
• The main new competitor for pine pulpwood is the energy market in Europe.
• These are not free markets. These are driven by government policy as the EU is a signer of the Kyoto Protocol.
• Large growth projected for this market moving forward.
• This assumes that present EU economical problems do not bring about a downfall of the EU.
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“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds
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2008 2009 2010 2011 2012 2013 2014 2015 2016
mil
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European Demand
Poyry
RWE (Europe)
Mitsubishi
AEBIOM
Rotterdam Port
Enviva Expectation
PROJECTIONS FOR FUTURE GROWTH OF EUROPEAN PELLET MARKETS (IN MILLION MT)
Source: U.S. Industrial Pellet Association
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SHIPPING COST FROM THE SOUTHEAST ARE COMPETITIVE COMPARED TO MOST REGIONS
Source: Poyry
DK/SW €20-€25
Bel/UK €30-€35
(Winter shipping challenge)
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Southern Forest Research Station, Forest Inventory & Analysis, The Inventory, March 2009
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Southern Seedling Planting all Owners & all States: 1925-2009
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500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
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Acre
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Auburn University Forest Seedling Nursery Coop - Data from USFS and GFC
CRP
Planting numbers
• Some have questioned these planting numbers.
• However the nursery numbers bear them out.
• ArborGen, the largest seedling producer in the world, has seen a 49% decline in seedlings shipped from 2001 to 2009.
• In 2000 I was responsible for the production and planting of 45MM seedlings. That same company will plant 18MM seedlings this next year, a decline of 60%.
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How did we get here?• In the 80’s and on to the late 90’s, pine pulpwood
shortages, especially during periods of wet weather, where not uncommon. During this period overcutting of timber growing stock was common.
• Our present situation is a result of this late 80’s CRP, or as we now hear it referred to “unintended consequences.”
• We added an additional 3 million acres of pine timberland in the South.
• As this has moved thru the system it has caused some real problems.
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How did we get here?
• When these stands reached thinning age starting in around 1999, we saw a glut of pulpwood on the market.
• There were cases of landowners in Georgia having to pay loggers to thin their CRP stands.
• This glut of pulpwood also coincided with major changes in timberland ownership as many integrated forest products companies disposed of their timberlands.
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Present state of things
• Presently we have an overabundance of small and large sawtimber on the market. The 3 million acres of land planted during the late 80’s CRP program is now ready to harvest.
• This happens to coincide with one of the greatest downturns in the housing market this country has ever seen.
• It will be years before all this sawtimber will find its way to the market.
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Present state of things
• Industrial landowners (TIMOs & REITs)are not helping the situation as most have lowered planting densities . Some have lowered densities to 218 stems/acre.
• Many are now planting CMP and SE seedlings. These high priced, low density seedlings are being grown for the sawtimber market.
• Tree improvement programs have focused on selecting trees for the production of sawtimber.
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Present state of things
• Additional dangers to forest plantation acreage may be in our current commodity pricing. With corn and cotton at all time highs we may see acreage revert from timberland back to farm land.
• Keep in mind that there is no such thing as marginal farmland. Marginal farmland in the South is called timberland.
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Present state of things
“The reports of my death are greatly exaggerated.” Mark Twain
• This can also be said about the pulp/paper industry in the South.
• Freesheet (fine papers) have declined. Closure of the Franklin VA mill.
• Linerboard appears to be holding its own.
• Pulp is the golden boy at present. Franklin mill to reopen in 2012 producing fluff pulp.
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Southern Pulpwood Production 1991, 2002, 2009. US Forest Service, Southern Research Station
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AL AR FL GA KY LA MS NC OK SC TN TX VA
Ton
s/D
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US South Daily Pulp/Paper Mill Wood Usage
1991
2002
2009
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Recent Pulp Pricing
Dissolving pulp prices on world markets have skyrocketed from protracted lows of $300 to $500 per ton from the 1970s into the late 1990s to as high as $1,800 to $1,900 currently, with spot prices up to $2,500 per ton and higher earlier this year. Market drivers have been in and out of gear in recent months but, overall, most observers see the dissolving pulp boom continuing for at least several more years.
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The Dissolving Pulp Gold Rush, Paper 360, September/October 2011
Present state of things
• At this level of pricing, pulp mills are making more than $300/ton.
• Typically a mill uses around four tons of greenwood to produce a ton of pulp.
• Based on this ratio, a pulp mill could currently pay an additional $75/ton for wood before they run into the red.
• Energy users can not pay these prices for wood.
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Present state of things
• In recent months I have received feedback from several sources on the FIA numbers.
• These numbers are being used to make major investment decisions on energy projects.
• There are questions related to inventory, removals and volumes.
• The issue of Florida timber harvest levels has been examined by John Morris VP at Foley Timberlands.
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CHART 4
SOURCE: F&W Forestry Services (2007)
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Southern Forest Research Station, Forest Inventory & Analysis, The Inventory, September 2011
What does the future hold?
Here are some possible scenarios;• Southern pine plantations will be heavily stocked
with sawtimber.• The specifications that differentiate pulpwood
from small sawtimber will probably change with the smallest of this sawtimber moving into pulpwood.
• This will result in landowners wanting increased pricing for pulpwood and downward pricing pressure on small sawtimber. There have been recent incidences of spot markets paying more for pulpwood than for small sawtimber.
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$/t
on
South-wide Pine Stumpage Prices
Sawtimber
Chip-N-Saw
Pulpwood
Expon. (Sawtimber)
Expon. (Chip-N-Saw)
Expon. (Pulpwood)
Source: Timber Mart South
What does the future hold?
• The volumes of forest residue will increase as we all know that larger trees have larger limbs and tops. Also, the current push to low planting densities will increase the amount of residue hardwood that invades these pine stands. These are both pluses for users of forest residue.
• With the continued glut of sawtimber on the market, there are many in the forest products industry who feel that we may see increased sales of timberlands by the TIMOs and REITs in an effort to prop up returns within these organizations.
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Summary
• The reduction in pine pulpwood inventories will impact all users, the existing pulp/paper industry and the new energy start-ups.
• Forest Landowners will have opportunities to “cash-in” on these reduced inventories. This will include the use of higher planting densities and intensive forest management.
• Users of pine pulpwood can be proactive and begin to plan for the feedstock markets changes or wait and pay the price.
• This situation will be a plus for users of forest residue.
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Questions
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