Pellet Mill Magazine - September/October 2015

September/October 2015

To the

Max Larger Ocean Vessels Tabbed for Pellet Transport to Europe Page 22

Plus: Producer Survey

Breaks Down Distribution Trends Page 16

AND:

Producers, Retailers Unite to Combat Demand Variability Page 28

www.biomassmagazine.com/pellets

Contents »

Pellet Mill Magazine

Advertiser Index

SEPTEMBER/OCTOBER 2015 | VOLUME 5 | ISSUE 5

24 Agra Industries 20 Airoflex Equipment 14 AMANDUS KAHL GmbH & Co. KG 18 Andritz Feed & Biofuel A/S 36 Astec, Inc. 34 BBI Project Development 15 Bliss Industries, Inc. 5 BRUKS Rockwood 2 CPM Global Biomass Group 12 EBM Manufacturing 19 Evergreen Engineering 13 GreCon, Inc. 11 Industrial Bulk Lubricants (a Dansons Company)

PHOTO: VAUGHAN BASSETT, PINNACLE RENEWABLE ENERGY

FEATURES 16

35 International Biomass Conference & Expo 2016

An industry-wide survey sheds light on how pellet producers distribute their wares in a market with an inconsistent beat.

By Katie Fletcher

33 Logistec 21

NESTEC, Inc.

25 Northeast Wood Products LLC 32 Rawlings Waste Wood Recovery Systems

22

27 SCHADE Lagertechnik GmbH

30 Uzelac Industries 9 Vecoplan LLC 10 West Salem Machinery Co.

SHIPPING

Panamaxing It Out

As foreign buyers ramp up the use of wood pellets, the need to maximize shipping efficiencies becomes more important.

By Tim Portz

26 RUF Briquetting Systems

31 Trinity Packaging Corporation

DISTRIBUTION

2015 Producer Survey Capacity, Capital, Storage Partner in ‘Pellet Dance’

28

MARKET

Matching Pellet Supply With Growing Demand

In a seasonal market with fluctuating factors, producers juggle having enough available stock with having too much inventory.

By Ron Kotrba

DEPARTMENTS 04 EDITOR’S NOTE

Industry’s Balancing Act

By Tim Portz

06 INDUSTRY EVENTS 08 TESTING GROUNDS

ENplus Update: Navigating New Changes

By Chris Wiberg

07 INDUSTRIAL INSIGHT

Pellets Still the Affordable, Available, Renewable One

By Seth Ginther

08 STANDARDS STEWARD

ON THE COVER

LARGE DISCHARGE: This summer, some 60,000 metric tons of wood pellets were unloaded from a Panamax-class vessel at the Port of Immingham ready for transit to Drax power station.

PHOTO: VAUGHAN BASSETT, PINNACLE RENEWABLE ENERGY

Pellet Fuels Institute Updates Standards Program

By Jennifer Hedrick

10 BUSINESS BRIEFS 12 NEWS 34 MARKETPLACE SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 3

« Ed Note

Industry’s Balancing Act The continued growth and vitality of this industry hinges on the satisfaction of its customers after each heating season. The surest way to frustrate and ultimately lose customers is to not meet their needs. As the 2015-’16 heating season approaches and retailers begin to build pellet inventories, the team at Pellet Mill Magazine dug into the complexities of operating a year-round facility that manufactures a seasonal product. Our team appreciates these Tim Portz nuances and we’re fortunate to have the guidVICE PRESIDENT OF CONTENT & ance of our excellent editorial board.

EXECUTIVE EDITOR tportz@bbiinternational.com Two features in this issue are built upon the results of an industry survey we wrote in close consultation with our editorial board in early August. We invited and urged the industry to participate, and we were thrilled when more than 50 producers took the time to answer our questions. Both Senior Editor Ron Kotrba’s and Associate Editor Katie Fletcher’s features build upon the survey’s findings. Our survey establishes that the majority of producers in the industry are aggressively growing their businesses, as a third of respondents reported over a 20 percent increase in annual production in the past two years. Still, the survey and Fletcher’s and Kotrba’s stories make it clear that the product’s seasonality creates challenges for producers and retailers alike.

For her story, “Capacity, Capital, Storage Partner in ‘Pellet Dance’,” on page 16, Fletcher asked a number of producers how their operations balance the opportunity for growth while limiting the risk of ending a heating season holding too much inventory. American Wood Fibers CEO Stephen Faehner told her, “I believe more of us are putting a higher percentage of our capacity in storage—at least those of us who have the financial ability to do so.” For Faehner, the ability to capture upside demand with on-hand inventory late in the heating season outstrips the risk of inventory carryover. The sources in Kotrba’s story, “Matching Pellet Supply With Growing Demand,” on page 28, are quick to point out that amassing inventory not only requires a storage solution, but an outlay of capital and disciplined management of cash flow. Paul Stringer, vice president of sales and marketing, told Kotrba, “This is a business that requires investment. It is an investment that you have to make to be a good supplier.”

This issue, more so than any other issue this year, would not have been possible without the guidance of our editorial board and the robust participation of the entire industry. I offer you our thanks and invite you to enjoy the great stories we were able to produce as a result.

Editorial

PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com SENIOR EDITOR Ron Kotrba rkotrba@bbiinternational.com ASSOCIATE EDITOR Katie Fletcher kfletcher@bbiinternational.com CONTRIBUTING EDITOR Anna Simet asimet@bbiinternational.com NEWS EDITOR Erin Vogele evoegele@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

Art

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Lindsey Noble lnoble@bbiinternational.com

Publishing & Sales

CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT OF OPERATIONS Matthew Spoor mspoor@bbiinternational.com SALES & MARKETING DIRECTOR John Nelson jnelson@bbiinternational.com BUSINESS DEVELOPMENT DIRECTOR Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Chip Shereck cshereck@bbiinternational.com ACCOUNT MANAGER Jeff Hogan jhogan@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com MARKETING & TRAFFIC COORDINATOR Marla DeFoe mdefoe@bbiinternational.com Subscriptions to Pellet Mill Magazine are free of charge—distributed quarterly—to Biomass Magazine subscribers.To subscribe, visit www.

BiomassMagazine.com or you can send your mailing address to Pellet Mill Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-7465367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Pellet Mill Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Pellet Mill Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Pellet Mill Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to asimet@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

Please recycle this magazine and remove inserts or samples before recycling TM

COPYRIGHT © 2015 by BBI International

4 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

Industry Events »

National Advanced Biofuels Conference & Expo

OCTOBER 26-28, 2015 Hilton Omaha Omaha, Nebraska

Produced by BBI International, this national event will feature the world of advanced biofuels and biobased chemicals technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry. With a vertically integrated program and audience, the National Advanced Biofuels Conference & Expo is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleumderived products.

866-746-8385 | www.advancedbiofuelsconference.com

International Biomass Conference & Expo

APRIL 11-14, 2016

Charlotte Convention Center Charlotte, North Carolina Organized by BBI International and produced

by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries.

866-746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & Expo

JUNE 20-22, 2016 Wisconsin Center Milwaukee, Wisconsin

The FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment.

The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine.

866-746-8385 | www.fuelethanolworkshop.com

« Testing Grounds

ENplus Update: Navigating New Changes

BY CHRIS WIBERG

On Aug. 1, the European Pellet Council released updates to the ENplus quality management scheme for wood pellets.

The new handbook—Enplus handbook version 3.0—replaces the prior version ENplus handbook version 2.0. Anyone who is currently ENplus certified under ENplus handbook version 2.0 will want to download the new handbook and read it thoroughly as there are a number of changes that could impact your current certification. Additionally, anyone who is considering ENplus certification, but has not yet been certified, will also want to download the new handbook as there are several components that are different from what you may have previously understood. The handbook can be downloaded from the ENplus website at www.enplus-pellets.eu.

While there is a summary of changes provided on the ENplus website, I will do my best to outline the substantive changes here as they pertain to North American pellet producers. First, the handbook has a completely different format and feel. There are now six parts to the handbook and there are national versions as well as an international master handbook.

The international master handbook is the version that applies within the U.S. Canada has a separate national version, so be careful you are downloading the version that applies to you.

When first viewing the new handbook, I highly recommend reading part one thoroughly before moving on to part two. Do not skip the terminology section as there are many changes. Handbook version 2.0 included descriptions for several entities including the EPC, national licensers, certification bodies, inspection bodies and testing bodies. These same entities still provide the overall structure, however, there are now several additional terms such as competent management, competent licenser, international management and certified service provider to name a few. It is important to understand these new terms in order to understand how the system works, which differs from country to country and when operating internationally.

When it comes to the specifications for wood pellet classes (grades A1, A2 and B) there are a few important updates. First, ENplus handbook version 3.0 now references ISO 17225-2 (formerly EN 14961-2) as the basis for the grade criteria, and all ISO-test methods are referenced instead of the previously referenced CEN- and EN-test methods. In some cases, the referenced ISO-test methods are not published yet, but there is a note in the handbook that the EN-method applies until the ISO-method is published. Second, there is grade criteria that has been tightened. Specifically, for ENplus A1 the durability requirement is now ≥ 98.0 and for B grade it is ≥ 6 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

97.5. The ash limit for A2 grade is now ≤ 1.2 percent, and there is a temperature requirement of ≤ 40 degrees Celsius at the last loading point for truck deliveries to end users.

When it comes to the ENplus certification process, several changes have been made. There are now rigid timeline requirements for compliance once the certification process begins. Inspection reports are due within two months of the inspection date and conformity reports must be complete within a third month, otherwise the application is rejected. Deficiencies are classified into three categories—Types A, B and C. Each type has different requirements for compliance. Annual surveillance inspections are to be conducted with ± three months of the initial inspection date. Inspection criteria has remained much the same, however, it is now required that all pellet storages also be inspected, which can include port facilities, warehouses, distribution points and others. The retention of reference samples is no longer required for bagged product, however, for bulk delivery ENplus handbook version 3.0 now requires that a reference sample be collected for every vehicle that is loaded. Reference samples are still held for nine months.

Regarding self-monitoring, the same five tests are still required to be tested on site—bulk density, moisture, durability, length and fines—though it is now stipulated that if doubts concerning the pellet quality exist, then additional tests may be ordered. This will apply primarily when producers approach the 0.7 percent ash requirement for grade A1. If ash content is close to the limit, then ash testing at the production site could become a requirement.

There are also changes regarding bag labeling. The ENplus certification seal has been changed as well as the way the grade is specified. In addition, all bag designs now need approval by the “competent management” before bags are sold on the market. The certified company whose ENplus ID is printed on the bag is responsible for submitting bag labels whether it is your brand or the brand of another party.

As I am sure you can now see, the changes to the newest version of the ENplus handbook are substantial. If you are already certified or interested in pursuing this quality management scheme, I highly recommend downloading the ENplus handbook version 3.0 and reading it in detail. The new handbook came into force for all new users as of Aug. 1 and will come into force for currently certified companies Jan. 1.

Author: Chris Wiberg Manager, Biomass Energy Laboratory 218-428-3583 cwiberg@tpinspection.com

Industrial Insight »

Pellets Still the Affordable, Available, Renewable One

BY SETH GINTHER

As we at the United States Industrial Pellet Association get ready for our 5th Annual Exporting Pellets Conference in Miami, it continues to be an exciting time in the industrial wood pellet industry.

European policymakers are poised to come back from recess with one thing on their minds when it comes to energy policy and decarbonization—how do they accomplish their goals in an affordable way without creating additional economic burdens on taxpayers?

As affordability moves to the forefront of European policymakers’ minds when confronting the energy “trilemma” of affordability, security and decarbonization, biomass remains the only affordable, commercially available renewable technology that can provide dispatchable baseload power to balance the energy grid at a moment’s notice. Baseload. Renewable power. All the time. Other renewable technologies are intermittent, meaning they only work when their fuel source is available, i.e., when the sun is shining or when the wind is blowing.

Accordingly, it is important to look beyond basic per megawatt-hour cost comparisons of all renewable technologies in order to truly understand how much each technology costs the average consumer on the road to decarbonization. A deeper analytical cost comparison will show that intermittent technologies also carry hidden costs associated with “demand capacity”—power plants that must be activated to balance the grid when the sun is not shining and the wind is not blowing. These power plants are often fossil fuel-based power stations that are kept on standby at excruciatingly high costs to the consumer.

Affordability will also translate here in the U.S. as federal and state lawmakers begin to implement President Obama’s Clean Power Plan. The plan emphasizes the importance of renewable energy and recognizes that sustainable biomass can be an important player in the fight against climate change.

As we work with EPA on the specifics of biomass carbon accounting, there are a multitude of states

ready to use sustainable biomass as an important component of their plans to mitigate climate change and increase their use of renewables. There are a few hurdles to address in this area, such as workforce and infrastructure, but we anticipate this domestic market will open up in the next few years, especially as the coal industry and domestic power generators look to cofiring as the most cost-effective way to continue the life of current coal plants. Because U.S. coal-fired power plants could use biomass for cofiring to meet the objectives of the Clean Power Plan—and do so while preserving jobs, infrastructure and capital investment—biomass can provide an affordable way for the U.S. to decarbonize as well.

There are additional nonsubsidized markets, such as the chemical production market, that could also open up for industrial pellet producers. In the U.S., we have spent the past decade developing the infrastructure and building a sophisticated supply chain to turn sustainable, low-grade woody fiber into sustainable wood pellets and deliver them to the world. With this development now behind us, the industry is able to participate in new markets without the costly start-up expenses.

It is critical that the industry remain flexible as we head into this period of expansion and diversification. There are plenty of opportunities in both traditional and emerging markets for industrial wood pellets and the entire bioenergy industry, we just need to be prepared to grab them as they come along.

For a more in-depth discussion on these issues and how the wood pellet industry can participate in new markets, I hope you will join us in Miami, Sept.

20-22 for our 5th Annual Exporting Pellets Conference. Visit www.theusipa.org/conference for more information.

Author: Seth Ginther Executive Director U.S. Industrial Pellet Association 804-771-9540 sginther@hf-law.com

SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 7

« Standard Steward

Pellet Fuels Institute Updates Standards Program

BY JENNIFER HEDRICK

At the PFI Annual Conference this summer, PFI announced several modifications to its standards program. For those of you who produce pellet fuel, I encourage you to take note of these program enhancements.

The PFI Standards Program is a fuel-quality program requiring regular third-party audits of pellet manufacturing facilities. It is a voluntary program, though new EPA regulations are sure to impact the marketplace and the demand for fuel tested through a graded-fuel program.

The PFI Standards Program is administered by the American Lumber Standards Committee, which oversees the program’s auditing bodies and testing labs, and does its own regular audits of production facilities.

The current program has been in effect for three years.

The enhancements to the program are a result of a review of best practices by auditing agencies, ALSC and the PFI Standards Committee. We took into account analyses of testing results and practices of the participating fuel manufacturers alongside the established standard specification and PFI Standards Program documents.

Some of the more notable changes to the program include: - Clarifying that the program is not a weights and measures based program.

- Increasing the range for acceptable bulk density to 40 to 48 pounds per cubic foot.

- Reducing the conformance criteria requirement from 95 percent to 90 percent.

- Adoption of the Rules of the Mark, which govern the program’s Quality Mark, found on product that meets the program’s specifications.

The major modification to the program involves a reduction in sampling frequency for manufacturers. Under the previous requirements, third-party audit samples were collected every 1,000 tons. New requirements allow for a reduction in the sample collection frequency to one audit sample for every 5,000 tons of production, provided the producer demonstrates three consecutive months of audits with no deficien-

8 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

cies, and the producer incorporates certain in-house quality verification at the production site.

If successful audits are not continually demonstrated, manufacturers will resume the once-per-1,000-ton audits.

Once conformance is maintained, facilities are again eligible to reduce their testing frequency to once every 5,000 tons.

The simple goal of these changes is to strengthen the program, which is achieved by ongoing review of the program’s structure and its documents. You can review this information on the PFI website, www.pelletheat.org/pfi-standards.

The larger goal gets to the crux of the program, which is to provide consumers with fuel that is consistent and reliable, ensuring that their appliance is operating at its maximum capability.

Manufacturers I’ve spoken to who are participating in the PFI Standards Program each had different motivations for joining the program, but all have seen improvements in their operations, whether through higher-quality production, operations efficiencies, or cost savings due to incorporating recommendations following audits. Their initial investment in the program has delivered significant return.

If you aren’t participating in the PFI Standards Program, I encourage you to take a closer look at the program, especially in light of recent program modifications and the new EPA regulation of residential pellet appliances, which requires any new EPA-certified appliance to use pellets submitted to a third-party, fuel-grading program. Consumers purchasing these new appliances will need access to graded fuel. How will you meet those requirements?

Author: Jennifer Hedrick Executive Director, Pellet Fuels Institute 703-522-6778 @pelletfuel Hedrick@pelletheat.org

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Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

Waste to Wisdom project launches new website Waste to Wisdom (W2W) has launched a new website that highlights its three-year effort and its objective to make better use of forest residues from timber harvests and thinning. W2W is funded by a $5.88 million grant from the U.S. Department of Energy and is led by Humboldt State University with assistance from 15 regional partners.

The grant is part of the Biomass Research and Development Initiative, a collaborative effort between the DOE and USDA that supports renewable energy research in the rural U.S. IRENA opens new headquarters The International Renewable Energy Agency recently celebrated the official inauguration of its permanent headquarters in Masdar City, United Arab Emirates. IRENA was founded in 2009.

New Holland names vice president New Holland has appointed Bret Lieberman to lead the brand as vice president of North America. Bret joined New Holland in 1990 with a position in service parts. Most Lieberman recently, he served as head of North America manufacturing, where he has been responsible for all agricultural and construction manufacturing plants since 2009.

BillerudKorsnäs divests its shares of SIA Latgran to AS Graanul Invest BillerudKorsnäs has signed an agreement with AS Graanul Invest concerning the sale of its shares in SIA Latgran, a leading Latvian-based pellets producer with annual volumes of 497,000 metric tons. BillerudKorsnäs’ ownership in Latgran is 75 percent, and the remaining 25 percent is owned by Baltic Resources Ab.

10 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

EPC announces updated version on ENplus Handbook The European Pellet Council released the 3.0 version of the ENplus Handbook on Aug. 1. The updates were needed due to rapid growth in the pellet market and evolving standards. The international ISO 17225-2 standard was published in 2014 making the European EN 14961-2 standard obsolete. ENplus had to adjust to these changes to continue guaranteeing the pellet quality all along the supply chain, from the producers to the end users. New terms to describe new business scenarios were developed, the quality requirements of the pellets have been adapted to the international ISO 17225-2 standard with some of them being even stricter than the standard.

Another major change was the introduction of a service provider certification ensuring that everyone in the supply chain takes care of the pellet quality.

BTEC to release draft thermal efficiency test method The Biomass Thermal Energy Council has announced plans to release a draft of the first thermal efficiency test method designed specifically for commercial-sized boilers that utilize solid biomass as a fuel stock, including pellets, chips, briquettes, and cordwood.

The project responds to concerns that a lack of reasonable testing standards for biomass systems can make it difficult for specifiers to provide the owner of a biomass system with a clear distinction between the performance of high-efficiency, low-emission equipment and less satisfactory performers. BTEC plans to hold a series of regional scoping meetings to gather public feedback on the standard in the fall of 2015 and spring of 2016.

ASABE announces progress with solid biofuel standards development The American Society of Agricultural and Biological Engineers has announced substantial progress was made at the seventh formal international meeting of ISO Technical Committee 238 (TC238), Solid Biofuels, held recently in York, England, where attendees gave special attention to a series of solid biofuel test standards and related topics. Significant time was also devoted to discussions on a classification standard for thermally treated solid biofuels, ISO 17225 part 8. According to the ASABE, development of international standards for solid biofuels has been ongoing since 2007, with seven of the 12 published ISO standards being completed within the past year, and another 26 standards at various stages of development.

UK GIB appoints chief risk officer The U.K. Green Investment Bank has appointed Jacqueline Redmond chief risk officer. Redmond joins GIB from Royal Dutch Shell, where she most recently held Redmond the position of head of commercial power.

She will be responsible for ensuring that GIB establishes and maintains an effective risk management framework, supporting the board’s strategy and risk appetite.

MGT Power, Macquarie sign agreement on Teesside plant Macquarie Capital and Macquarie’s Commodities and Financial Markets group recently signed an agreement to support MGT Power Ltd. in the financing of the 299 MW Teesside Renewable Energy Plant, which has received a U.K. governmentsupported contract for difference (CfD). All major permits for the project’s construction and operation have been secured and Macquarie Capital has commenced a debt raising process. Financial close is targeted for the fourth quarter.

Drax takes delivery of 200th biomass rail freight wagon A three-year partnership between Lloyds Register Rail, U.K. manufacturer WH Davis and Drax reached a significant milestone last summer when Drax took delivery of its 200th specially designed biomass rail freight wagon. Since entering operations in 2013, the wagons, designed by Lloyd’s Register Rail and manufactured by WH Davis, have collectively travelled over 12 million miles between the Ports of Tyne, Hull and Immingham and Drax. Over the course of these journeys they have transported around 4.5 million metric tons of sustainable biomass.

Viridis announces European supply agreement Viridis Energy Inc. recently announced that its wholly owned subsidiary Viridis Merchants Inc. has secured a European supply agreement for up to 20,000 metric tons of ENplus certified premium wood pellets per year. VMI intends to distribute to the residential heating market throughout the U.K. and Europe. The supply of certified pellets is marketed under the new Okanagan Nordics brand, which is the fourth brand in the Okanagan wood pellet family. VMI has already begun distributing the new brand to the residential heating market in the U.K. and plans to distribute to Italy and other European countries.

SHARE YOUR INDUSTRY NEWS: To be included in the Business Briefs, send information (including photos and logos, if available) to Business Briefs, Pellet Mill Magazine, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You may also email information to evoegele@bbiinternational.com. Please include your name and telephone number in all correspondence.

SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 11

Pellet News Euronext to launch wood pellet futures contract

BIG BIOMASS ACHIEVEMENT: Associated British Ports’ continuous ship unloaders discharge approximately 60,000 metric tons of biomass from the POPI S at the Port of Immingham.

PHOTO: ASSOCIATED BRITISH PORTS

World’s largest shipment of pellets reaches UK The world’s largest single shipment of wood pellets was discharged at the Associated British Ports’ Humber International Terminal at the Port of Immingham in the U.K. in July, destined for delivery to Drax.

Nearly 60,000 metric tons of wood pellets were unloaded from the POPI S. The event marks the first time pellets have been carried by a Panamax-class vessel. The ship was originally loaded at

the Westview Terminal in Prince Rupert, British Columbia, in early June before making the 34-day journey to the U.K. The pellets were discharged using ABP’s bespoke continuous ship unloaders, which feed the biomass fuel onto a conveyor system connected to Immingham Renewable Fuels Terminal. The pellets are stored in eight silos, each with a 25,000-metric-ton storage capacity, before being transported to Drax via rail.

Euronext has announced plans to launch a new wood pellet commodities futures contract this fall, subject to regulatory approval. Aimed at producers, wholesalers and retailers, the physically settled contract targeting the residential heating sector will allow the industry to hedge its positions. “This is an important initiative for the pellet industry as it provides a clear response to the high volatility we have seen recently in pellet pricing,� said Christian Rakos, president of the European Pellet Council and president of Propellet Austria. “It will offer a hedging tool that will allow our members to manage their risk from production to purchase to sales.

The European Pellet Council is delighted that Euronext will be using our ENplus A1 certification as a base for the underlying of its future contract. We believe this initiative will contribute to reinforce and structure the sector.�

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Pellet News »

German Pellets expands production capacity at Urania, Louisiana, plant German Pellets GmbH has announced construction is underway on the second phase of development at its plant in Urania, Louisiana.

The second phase of construction will expand production capacity from 578,000 to 1.156 million metric tons per year. According to German Pellets, financing for the capacity increase has been raised in full.

“We are delighted at the fast realization of the expansion of our second plant in the U.S. and, hence, the increased production,” said Peter H. Leibold, managing partner at German Pellets.

Pellets produced at the Urania plant are exported using German Pellets’ existing port complex in Port Arthur, Texas. The loading fa-

UK announces policy changes

Urania Texas

Woodville Port Arthur

Louisiana

cility, built in 2013, has a capacity of 75,000 tons and can handle Panamax-size ships.

With the first construction phase complete, the company reported the first shipment of pellets produced at the Urania facility was loaded at the port in July.

The U.K. government announced two policy changes in July that could impact the bioenergy sector. In early July, the U.K. announced it would remove the Climate Change Levy exemption for renewable electricity generated after Aug. 1. The levy is essentially a tax on energy collected from certain entities.

The move is expected to impact Drax and other renewable energy producers in the country.

The U.K. Renewable Energy Association said it has concerns the removal of the Climate Change Levy exemption for renewable electricity will impact all renewable and low-carbon generation for its members.

Later in the month, the U.K Department of Energy and Climate Change announced changes to grandfathering provisions for biomass cofiring and conversions under the Renewables Obligation.

According to the DECC, it is removing the guaranteed level of subsidy for biomass conversions and cofiring for the duration of the RO, known as grandfathering. Under the grandfathering policy, once a generating station is accredited and receiving RO support at a certain level, that level will not change for the lifetime of its support under that scheme. However, exceptions are expected to be provided to protect those who have already made significant financial commitments.

« Pellet News U.S. GHG emissions from combustion of fossil fuels for electricity generation (MMT CO2) GHG emissions 1990 2005 2013 Total CO2 from fossil fuel-fired electric generating units From coal From natural gas From petroleum

1820.8 1547.6 175.3 97.5

2400.9 1983.8 318.8 97.9

2039.8 1575.0 441.9 22.4

SOURCE: U.S. EPA

EPA releases Clean Power Plan In early August, the U.S. EPA released the Clean Power Plan final rule. In addition to including some key changes when compared to the proposed rule, the plan contains vague language related to using certain kinds of biomass fuel as a carbon reduction method.

The rule calls on each state to craft its own plan based on policy and resources of its choosing, and is designed to provide flexibility in meeting goals set by the EPA, which vary by state. The final rule requires existing power plants to reduce carbon pollution by an average of 32 percent by 2030, a 9 percent target increase from the proposed 30 percent.

The final rule also allows states a twoyear extension to submit plans, if needed.

States requesting an extension will have until September 2018 to submit final plans either alone or in cooperation with other states. The final rule also includes several measures to provide more flexibility to states and utilities.

While the proposed rule suggested biomass power may play an important role in achieving carbon reduction goals, the final rule does not provide certainty on how biogenic emissions will be treated.

Rather, that will be largely determined by the EPA’s yet-to-be-completed accounting framework for biogenic carbon emissions.

Port of Liverpool terminal to supply pellets to Drax In June, U.K.-based Peel Ports Group announced plans for a new £100 million ($158.29 million) biomass terminal at the Port of Liverpool. The facility will supply pellets to the Drax power station in Selby.

The terminal will be owned and operated

by Ligna Biomass Ltd., a company owned by the shareholders of Peel Ports Group Ltd. U.K.based Graham will build the facility. The project is scheduled to be fully operational by next July.

Once complete, the terminal will have the capacity to handle up to 3 million tons of wood pellets per year. Pellets that arrive at the port will be shipped via rail from Liverpool to Selby. Peel Ports Group estimates the terminal will have the ability to facilitate up to 10 train loads of pellets per day, accounting for up to 40 percent of the total wood pellets consumed by Drax each year.

In addition to rail loading capability, the port facility will also feature 100,000 tons of pellet storage capacity.

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Pellet News » AWP expected to purchase land for proposed plant

Okanagan Pellet Co. begins upgrade Enterprise

Four years ago, Aurora Canada Wood Pellets Ltd. began the development of a 200,000-metricton pellet plant in the Northwest Territories of Canada. With two Forestry Management Agreements in hand, CEO Brad Mapes said in July that the company is expected to purchase the site’s land soon. He estimates the proposed facility, located near Enterprise in the Northwest Territories of Canada, could be operational by mid-2017.

Mapes attributes the delay in development to how AWP plans to source its feedstock, an increase in the size of the planned property, and the government of the Northwest Territories recently pulling their land department out of their Department of Municipal and Community Affairs. “We want to harvest full logs. We’re not going to take it as a byproduct from the mills, so we’re going to debark our material and use mulching of full wood,” Mapes said, noting the project has encountered issues with regard to working out deals with local aboriginal groups so that it can access wood in their areas. “That is what has consumed the largest percentage of time in trying to move this project forward,” he said.

Viridis Energy Inc. recently announced that its wholly owned subsidiary Okanagan Pellet Co. Inc. has begun a major upgrade that will be conducted in three phases over one to two years.

The upgrades relate to new regulatory requirements for storage and management of wood pellets.

The first phase, which is expected to take 8 to 10 weeks, is underway and will provide for a separation of the two main production lines, pellets and shavings, so they can be operated independently.

Phase one will also include improvements in the wood dust management system to ensure continued compliance with the increasingly stringent

safety guidelines for the wood industry, implemented in British Columbia.

The second phase includes the addition of new, semipermanent tent structures for the safe storage of wood fiber. The storage systems will substantially increase OPC’s fiber capacity and include the decommissioning of the current storage building, improving production efficiencies.

The third phase of the upgrades will include the addition of a new pellet press and state-of-the-art dryer that will expand the facility’s capacity by approximately 50 percent.

Planning for the third phase will begin in the fourth quarter.

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« DISTRIBUTION

2015 Producer Survey Capacity, Capital, Storage Partner in 'Pellet Dance' A sampling of producers offers a glimpse of the delicate balance between meeting yearly pellet demand and stranding precious capital.

BY KATIE FLETCHER

W

hen customers are unable to find bags of pellets lining the shelves of their neighborhood big box retail store in a particularly cold heating season, the situation has sometimes been attributed to a capacity shortage. The empty shelves are not a result of limited production capacity, however, but rather the limited capacity producers have to store product. The pellet fuel shortages have been limited, in fact, to select regions of the U.S. during certain times of the year, and have not impacted all producers––tightness in the marketplace has been experienced predominantly where the most dynamic market share is sold, the Northeast.

A tight supply of pellets in a particular region has often been countered with softer markets for pellets elsewhere, creating not a problem of capacity, but of logistics. Further, storing enough product to meet demand is often a substantial commitment not only in dollars, but infrastructure. Even if producers have the capability to store adequate product on-site, they may not have the capital needed to keep the plant running during the off-season when consumer demand is low. Driving just the right amount of throttle into a plant to produce product with demand contingent

on uncontrollable factors, like volatile weather patterns and other competitive fuels, is a challenging balancing act, and it isn’t uncommon for a producer to lose their steadiness.

Pellet Mill Magazine distributed a survey to North American pellet producers, compiling information about their infrastructure capabilities and distribution patterns as a means to share some collective data about the industry. In August, 52 producers responded to the online survey. The number of respondents is representative of the industry as a whole, but the data was self-reported and gathered without random sampling techniques. Respondents represent a variety of plant sizes across different regions of the U.S. The straightforward, 12-question survey sheds light on a range of questions from the amount of annual production producers are able to store on-site to how much of their production they distribute through big box retailers.

Capacity and Capital

Amongst the survey respondents, about 76 percent of producers have experienced increasing annual production trends—43 percent increasing by less than 20 percent and 33 percent increasing by more than 20

16 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

percent. About 16 percent reported their annual production trends have stayed about the same or flat. The remaining 8 percent have experienced their annual production trending downward by more than or less than 20 percent in the past two years. Based on this sampling of producers, overall, pellet production is on the rise.

American Wood Fibers began producing wood pellets in 2005 with a 50,000-ton plant in Circleville, Ohio. It opened a 75,000ton plant in Marion, Virginia, in 2009 and offers 25,000 tons—contract manufactured— from a plant in Schofield, Wisconsin. The company has experienced about the same to marginal improvements in annual production trends over the past few years. American Wood Fibers CEO Stephen Faehner says the company can store well over 10,000 tons of pellets on each site, about 20 to 30 percent

DISTRIBUTION »

ON-SITE STORAGE: According to Pellet Mill Magazine's industry survey, 35 percent of pellet producers have capacity to store less than 10 percent of their annual production on-site, and 10 percent can store over 30 percent of their yearly production. Producers agree that on-site storage capacity is critical to a pellet operation.

PHOTO: APPALACHIAN WOOD PELLETS INC.

of annual production. There seems to be an upward trend in the ability of pellet manufacturers to store more pellets off-season, he says. “This season we carried above 20,000 tons total, so that’s a pretty hefty commitment in dollars, but it’s also a commitment in infrastructure,” Faehner says. “You can only put so much of this out in the weather for so long. I believe more of us are putting a higher percentage of our capacity in storage—at least those of us who have the financial ability to do so.”

Appalachian Wood Pellets Inc. 50,000-ton-per-year plant in West Virginia can store around 20 percent of its production capacity on-site, and its production has been increasing by less than 20 percent over the past two years. “We’ve been fortunate at our facility—and we probably are a little different than most—in that we have more storage capacity

than we’ve needed over the last few years,” says Tom Plaugher, vice president of operations with Appalachian Wood Pellets. “We’ve been able to continue moving product in the off-season and have not come close to maxing out our storage capacity. It’s allowed us to produce to our maximum potential.”

Based on the survey, just under 30 percent of the respondents join Faehner and Plaugher in having the capacity to store over 10,000 tons of pellets on-site. Twenty-four of the responding producers, or 46 percent, have the ability to store between 1,000 and 10,000 tons. The remaining 25 percent of respondents split fairly evenly between storing less than 100 tons of finished product on-site and 100 to 1,000 tons. Another way to look at the data is that 35 percent of producers can only store less than 10 percent of their annual production on-site. About 55 percent can store

What percentage of your annual production do you have the capacity to store on-site?

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SOURCE: BBI INTERNATIONAL GRAPHICS: FREEPIK

SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 17

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10 to 30 percent of their annual production, and just 10 percent can store over 30 percent of their yearly production capacity.

Western producer Stan Elliot, vice president of sales with Olympus Pellets, says in the Western two-thirds of the country over the past five years or so there has been plenty of production and storage capacity, but the Northeast has experienced some issues with pellet supply. “Weather in the Northeast has created supply problems these last two years,�

Elliot says. “The weather was just so extraordinarily cold that nobody anticipated it would stay so cold for so long.�

Elliot says the real issue in pellet supply arises in the difficulty for a plant to run April through August when there are so few retail accounts that will actually take product. It is a cash flow challenge for many pellet producers to purchase raw materials, bags and wooden pallets, and then store several thousand tons of pellets when few retailers are willing to purchase them, he says. “What can happen in some of these shortage years is many manufacturers have had to limit their summer production because they didn’t have customers paying them for it,� Elliot says. “They may 18 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

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have had a nameplate capacity of 5,000 tons per month, but they may only make 40,000 tons a year simply because they couldn’t afford to run in those lean summer months.�

Elliot adds that in the West, his plant and a few others have had to slow down and not produce at full capacity for short periods of time around December and January simply because they had more inventory on the ground than needed to carry them through the rest of the heating season. “You always build a stockpile and then hope you can keep up with demand, but if the weather was mild, like it was in the West, then you end up with too much supply and then you have to slow your production schedule in late winter,� he says.

DISTRIBUTION »

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Taken in aggregate, the survey results show this wasn’t the case for all producers.

Where some Western producers had pellets stocked up, ready for distribution, 42 percent of producers were not able to immediately fill one to 30 of their orders during the 2014’15 heating season. Another 12 percent of producers couldn’t fill 30 to 100, and 8 percent fell short of immediately supplying over 100 orders. Thirty-eight percent were able to fill all orders on time.

Finding the right balance between the amount of storage one needs and can afford is a challenge due to the fluctuations and uncertainty of pellet demand, but it is considered essential to many producers. “It’s important to us,” Plaugher says. “We don’t have continuous flow of our product 12 months a year, and we need the production 12 months a year to meet the commitments to our customers. A certain percentage of our product we have to be able to store in order to continue that production.” Plaugher adds that “it requires storage space and operating capital to carry that extra production, but it is crucial to our business plan for the entire year to be able to do that.”

Besides storing on-site, there has been some talk among producers and their larger, big box retailers of setting up outlets for storage. “I think the producers in the Northeast have done a very good job communicating with the big box guys—Lowe’s, Home Depot, Tractor Supply—basically to convince them that they need to establish warehouse facilities that they can fill up during those summer months to where they have adequate supply to feed their stores during the winter months,” Elliot says. “They haven’t done that in the West, but in the East I know several pellet companies that have been shipping 10 to 15 truckloads every day into public storage warehouses that are controlled by one of the big box retailers just to ensure that they have enough pellets for when the season comes in.”

The Pellet Dance

Appalachian Wood Pellets provides approximately 50 percent of its annual production to big box stores, with the remaining composed of bulk business and independent retailers. Similarly, American Wood Fibers sells about 50 percent to big box retailers. Olympus Pellets channels about 65 percent of its sales through its big retailers like Home Depot, Tractor Supply, Lowe’s and Costco. These three producers aren’t reflective of the majority of survey respondents, or 63 percent, who reported less than 50 percent of their annual production is sold to big box retail companies. Twentyone percent of producers reported they sell 50 to 75 percent through big retailer chains and the remaining 16 percent is split evenly between producers who distribute 75 to 80 percent or over 90 percent of their product through big box stores.

Faehner refers to big box retailers as being “an enigma” to the pellet industry.

“These big boxes behave differently,” he SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 19

« DISTRIBUTION

Who is responsible for selling the bulk of your production OPTION 01 volume?

of the North American pellet industry uses a sales representative employed by the company to sell the bulk of their production volume

SOURCE: BBI INTERNATIONAL

says, adding he thinks big box stores are going to trend toward purchasing certified pellet product. He believes having the Pellet Fuels Institute standard certification will give producers a leg up in the marketplace. “A lot of producers worry the cost of certification is prohibitive,” Faehner says. “I would argue that the opposite is true. It actually comes back to you in higher quality, fewer complaints, callbacks and replacements, and improved throughputs. I think certification of wood pellets is the future.”

When it comes to bulk sales, the survey indicates that producers either sell very little or quite a bit of their annual production in bulk. Over 50 percent of producers sell less than 10 percent of their production volume in bulk or none at all. However, 27 percent sell more than 50 percent in bulk, and 19 percent fall somewhere in-between.

Variances in the supply and demand of pellets is a result of the inevitable guessing game producers have to play to estimate how much product they’ll need to meet demand and the commitments they receive from their

Do you offer off-season (March-July) discounts?

55% 45% SOURCE: BBI INTERNATIONAL

YES NO

retailers. Often, received commitments are not binding under contract. In fact, 29 percent of producers don’t have sales contracts at all, and another 38 percent have less than 50 percent of their annual production committed under contract. After reviewing the survey, Faehner found it interesting that it

20 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

appeared as though very few people are actually committed under contract. “Powerful retailers get indemnity from their suppliers,” he says. “When there is written documentation, it is usually in the form of a one-sided vendor agreement that is not a contract and is nonbinding.” Faehner adds, “Once they issue purchase orders and product is shipped against them, then you have something more concrete, but there are very few companies with hard-and-fast contracts.”

Forty-six percent of producers reported that they process in-season orders they receive through customer-priority ranking, followed closely with 40 percent of producers processing orders on a first-come, first-served basis.

Others include quickest payment terms, net price, historical customer demand, black-box formula and a combination of ways. Sales are usually made by an in-house sales representative, with 83 percent of producers reporting this is who is responsible for the bulk of their sales.

Without a majority of producers’ production committed under contract, they rely

DISTRIBUTION »

upon forecasts, historical sales, reliable customers and other variable methods to gauge demand. Elliot says big box retailers will give forecast estimates of what they’ll need. “The forecasts tend to be a little slanted because they want to put the burden on the pellet producer to make sure you have enough for them, but of course, if it’s a mild year, it’s very difficult living up to that commitment,” he says. “We’ve certainly had that situation. The big box guys, typically in the West anyway, will only carry pellets say from Labor Day until the end of February, then they start switching out all of their departments into garden and that sort of thing. If they’re behind on their commitments, and this has happened in the last two years for us, then we bring it to their attention. They are normally willing to keep pellets in their stock maybe for another month just to help meet that commitment.”

The survey results show that 67 percent of producer’s big box customers buy in the off-season and that the remaining 33 percent do not. Plaugher says it seems like the number of big box retailers purchasing in the off-season is increasing, especially over the past two seasons, which he attributes to some product shortages. “They’ve started taking products in the off-season, doing some of their own storage, I’m assuming to make sure

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they don’t run into that type of a situation again,” he says.

According to Faehner, usually big box retailers cease buying quickly once the end of the season approaches. “You have to look at it from the perspective of the big box and how they operate,” he says. “They are a seasonto-season business. They are always resetting their stores and they don’t carry the inventory off-season. It’s just not their model.”

None of Olympus Pellets’ main, large retailers purchase in the off-season. “We have

a lot of independent or regional pellet retailers that do buy some,” Elliot says. “We offer summer specials and we certainly encourage those, but so far the big box guys haven’t taken advantage of those sales.”

Elliot believes retailers will work with producers when there are projection miscalculations. “Retailers will try to alleviate a projection shortfall, but of course they can’t force the pellets down people’s throats any more than we can,” he says.

As the industry matures, retailers and producers alike will get better at gauging the supply and demand needed to keep pellet plants profitable, retailers’ shelves stocked and pellet consumers supplied. “Sometimes, you just have to work with each other and understand that we’re in a seasonal business,” Elliot says. “You look at their forecast and determine whether you think it’s realistically based on what you think is going to happen.

It’s just part of the dance.”

Author: Katie Fletcher Associate Editor, Pellet Mill Magazine 701-738-4920 kfletcher@bbiinternational.com

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ÂŤ SHIPPING

Panamaxing It Out As the consumption of wood pellets in European power stations matures, shipping efficiency is maximized by utilizing the largest vessels available.

BY TIM PORTZ

22 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

SHIPPING »

O

n June 2, at the Westview Terminal in Prince Rupert, British Columbia, a Panamaxclass vessel, the Popi S, was loaded with nearly 60,000 tons of wood pellets produced by Pinnacle Renewable Energy. Thirty-four days later, the pellets were successfully unloaded at the Port of Immingham’s Renewable Fuels Terminal, making it the first successful use of a Panamax-scale vessel to transport wood pellets. The shipment is important for a number of reasons, significant among them that shipments of this size will need to become commonplace to make the widespread use of wood pellets for power generation economically sustainable in the long term.

The advantages of using larger vessels to ship wood pellets are easy to understand.

Larger vessels generally allow for the transport of goods, including wood pellets, at a lower unit cost than smaller vessels. Still, there are numerous factors at play that complicate what initially looks like a simple business decision.

The movement toward the use of wood pellets to make electric power—in particular the conversion of nearly half of Drax power station’s annual output to biomass input— has created a demand for industrial wood pellets felt around the world. Producers with access to large volumes of wood fiber in close proximity to ocean shipping lanes have and continue to come online to satisfy this growing demand.

market via the company’s Westview Terminal, a $42 million wood pellet receiving, storage and shipping facility in Prince Rupert. This facility connects Pinnacle’s robust production footprint with any port in the world. The challenge Pinnacle must overcome is that its Westview Terminal is over 11,000 nautical miles from the ports on England’s East Coast.

For comparison, the Port of Chesapeake, a Virginia terminal utilized by U.S.-based competitor Enviva, is just 4,214 nautical miles from the Port of Immingham. While the Popi S spent 34 days navigating North America’s West Coast, through the Panama Canal and northeast across the Atlantic, ships leaving the Port of Chesapeake likely made the journey in less than two weeks. The advantage in freight costs for producers in the southeastern United States is clear. “The only way we can compete is on scale,” says Vaughan Bassett, vice president at Pinnacle.

Until the Popi S shoved off from the Westview Terminal, Pinnacle relied largely upon the Supramax class of vessels. Bassett reports that Supramax vessels typically leave Westview with around 50,000 tons of pellets.

“What we’ve determined with the Popi S trial is that the maximum cargo size that we can put into the Panamax class of vessels is about 60,000 tons—10,000 tons or 20 percent more than we were doing in the past. That is significant and considerable,” he says. Bassett continues by noting that the travel time and the fuel usage is virtually the same between the Supramax vessels they traditionally use and what they experienced and learned in the Popi S trial. “The only major difference is the Particular to Pinnacle Pinnacle Renewable Energy, Canada’s amount of cargo you can put into it,” he says. largest manufacturer of wood pellets with six production plants in British Columbia, Not That Simple perceives this market opportunity as When considering all of the results fundamental in its corporate mission to be “the of Pinnacle’s Panamax tests with the Popi world’s most reliable producer and lowest-risk S, the company’s interest in increasing supplier of bioenergy products.” The bulk the widespread use of Panamax vessels is of Pinnacle’s production enters the global straightforward. The urgency toward this FIRST OF ITS KIND: In July, 34 days after steaming away from Pinnacle Renewable Energy’s Westview Terminal in Prince Rupert, British Columbia, the Panamax-class vessel Popi S berthed at the Port of Immingham, unloading the world’s first Panamax-sized load of wood pellets.

PHOTO: ASSOCIATED BRITISH PORTS

SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 23

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PHOTO: VAUGHAN BASSETT, PINNACLE RENEWABLE FUELS

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class of vessel, however, has more to it than simply moving more product at once. â&#x20AC;&#x153;Supramaxes are chartering for more money than Panamaxes right now,â&#x20AC;? Bassett notes. He points out that the vessel classâ&#x20AC;&#x2122;s greater flexibility is one of the key drivers in the premium the vessels are currently getting in the marketplace.

Bassett concludes, â&#x20AC;&#x153;For quite a long time now Panamaxes have been languishing. There is lots of availability and chartering rates are relatively low.â&#x20AC;?

Combined with their

economic advantages and their widespread availability, it is easy to wonder why Pinnacle doesnâ&#x20AC;&#x2122;t simply switch completely over to the Panamax class, beginning with its very next shipment.

The answer, Bassett points out, is connected to a current requirement for all vessels carrying wood pellets. â&#x20AC;&#x153;You are required to use CO2, or some sort of inert gas fire protection system, on board a vessel carrying wood pellets,â&#x20AC;? he says. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s why Supramaxes are used, because they usually have it, while Panamaxes do not.â&#x20AC;? A

SHIPPING »

ships that have this fitting is so small, it gives them such a huge negotiating advantage, all for a safety feature that is completely unnecessary.” Of course, simply proclaiming safety features unnecessary is far from enough to convince the International Convention for the Safety at Sea to change regulations. “We had to put some money out to do the research at WPAC to prove that the off gasses were not flammable,” Murray says.

Proof of Safety

small number of Panamax-class vessels, including the Popi S, are outfitted with this piece of equipment, Bassett says, but in a vessel class that numbers around 900, he believes only 50 or so have it installed.

For now, anyone looking to ship large amounts of wood pellets must find a vessel with this system installed, and the owners of Supramax vessels—nearly all of which have the equipment— know it. Trade associations have taken notice, and the Wood Pellet Association of Canada has been aggressively working on this issue for some time now. “It boils down to a market thing,” says Gordon Murray, WPAC executive director. “When the pool of

In a document Murray provided to Pellet Mill Magazine, written by Staffan Melin, research director for WPAC, research efforts spearheaded by the WPAC are outlined that have informed the IMO’s Bulk Cargoes Code since 2004. In the document, Melin notes that while wood pellets are classified in the category Materials are Hazardous in Bulk, because they do emit carbon monoxide as they degrade in transit, the gases they produce while degrading are not flammable.

The document indicates that the vast majority of oceangoing cargoes require the vessels carrying them be “equipped with fixed-gas fire extinguishing systems or fire extinguishing systems giving equivalent protection.” There are, however, cargoes that have been exempt from this requirement, and the WPAC has been working to get wood pellets added to this list.

Quite simply, the WPAC has had to produce scientific proof that wood pellets “would not emit flammable composite gas, would not self heat and would not have a burn rate above a certain level.”

Working in close collaboration with the Univeristy of British Columbia, the WPAC conducted research that supported this claim and

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presented their findings to the IMO in September 2013. The process to ratify IMO regulations moves slowly, and the research worked its way through technical reviews and working committees through 2014, eventually ratified by the Maritime Safety Committee June 12. The exemption will go into effect on a voluntary basis Jan. 1, and one year later— after procedural votes with IMO members— will become mandatory.

Once fully ratified, all Panamax vessels will be able to move wood pellets in bulk, regardless of whether they are equipped with the extinguishing systems. ”It’s not just good for Canadian producers,” Gordon says. “It’s good for every pellet producer in the world.”

Optimized for Size

THE BUSINESS END: The Port of Immigham commissioned the construction of two custom-built continuous ship unloaders (CSUs) to prepare for the coming tide of larger vessels filled with wood pellets.

These CSUs are capable of moving pellets out of a ship’s hold three times faster than a crane and with far less dust.

While wood pellets are and will likely continue to be shipped in smaller, handy-sized vessels capable of carrying around 25,000 tons of pellets, the desired trend for producers and the ports that receive them is for larger shipments. Assuming an annual consumption

rate of 6 million metric tons of wood pellets per year at Drax, delivered entirely in those 25,000ton capacity vessels 240 individual shipments would be required. For comparison, the same volume delivered entirely by Panamax-sized vessels carrying 60,000 tons requires just 100 individual shipments. Looking at it this way, it is easy to see how larger vessels can help alleviate potential bottlenecks at U.K.-based pellet receiving ports.

With an eye on their transit distance from European markets, Pinnacle has always envisioned and planned on a progression towards Panamax vessels. Speaking about Pinnacle’s Westview Terminal in Prince Rupert, Bassett says, “We designed the thing for Panamax-sized vessels, but the first time we actually filled a Panamax was the Popi S trial.”

The topography of the port is enviable when it comes to berthing Panamax-sized vessels. Built into a formation that Bassett refers to as fjord-like, Westview reaches depths of 13 meters right off the berth, and just a few

PHOTO: VAUGHAN BASSETT, PINNACLE RENEWABLE FUELS

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more meters out the depth is 23 or 24 meters.

“I think it is the deepest natural harbor on the West Coast in America,” Bassett says.

This natural depth allows the port to easily receive Panamax vessels, but the port’s ability to load the vessel was unknown until the Popi S trial. The speed and ease at which these Panamax vessels, 30 meters longer than Supramax and built with seven holds instead of five, matters for a number of reasons. Owing to the rainy climate in British Columbia, the Westview Terminal must make the most of any day with dry conditions. “We can’t load in the rain,” Bassett says. “Wood pellets are rain sensitive. We need to have the ability to load fast in periods which are quite short. We can load at 2,000 tons an hour if required.”

The same requirement applies when unloading vessels at their port destinations in the U.K. The Popi S was unloaded at the Port of Immingham’s Renewable Fuels Terminal, operational since 2014. The terminal, with 100,000 tons of on-site storage capacity, can unload vessels at a rate of 2,500 tons

per hour. The facility employs two custombuilt continuous ship unloaders (CSUs) built expressly for the unloading of wood pellets from very large vessels including Panamaxes.

With a slightly different hull configuration than Supramaxes, the team at the Westview Terminal wasn’t sure what to expect from an ease-of-loading standpoint. Their experience was a pleasant surprise. “We were able to load the pellets much easier, from a geometric perspective, into the Panamax than we had been able to in the Supramax,” Bassett says.

At their current production output, Pinnacle will load between 12 and 18 vessels each year at the Westview Terminal, and, up until the Popi S, those vessels had all been Supramaxes or smaller. But with the successful trial of the Popi S paired with the research and the subsequent decision by the IMO to include wood pellets on the list of items exempt from the requirement for extinguishing systems, it seems likely that more Panamax-class vessels will be berthing at Westview.

Certainly this is positive for Pinnacle, but

W E

C O N V E Y

it will also be a welcome development for the owners of a vessel class that’s been struggling to find steady volumes of cargoes. Built to move massive amounts of iron ore and grain, the Panamaxes were also once kept busy moving coal. Some of the Panamaxes slowdown can be attributed to the fall off in coal exports since 2012, but now, it seems, the vessel class might be buoyed by coal’s renewable replacement.

If every ton of Pinnacle’s annual production were moved via Panamaxes, their volumes would create roughly 20 load opportunities for the vessel class, hardly enough to completely revive the class. Bassett, however, sees the success of the Popi S as the beginning of a widespread transition to Panamaxes across the industry. “With our successful use of the Panamax class now, we’ve sort of opened up that vessel class to the pellet trade,” he says. “It means there will be less of them lying idle.”

Author: Tim Portz Executive Editor, Pellet Mill Magazine 701-738-4969 tportz@bbiinternational.com

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Matching Pellet Supply With Growing Demand Despite fluctuations, producers and distributors agree: Good relationships and communication can help keep stores stocked with wood pellets during the busy heating season.

BY RON KOTRBA

F

ew events can sour the experience of domestic, residential pellet stove users more than being unable to buy product during a cold snap.

“Frankly, not having enough products to meet demand is my major concern,” says Paul Stringer, vice president of sales and marketing for Somerset Pellet Fuel, a Kentucky-based pelleting operation with an annual capacity of 50,000 tons. Somerset’s raw material comes to the facility already kiln-dried from its hardwood flooring plant. The company’s pellet customers are big box stores such as Tractor Supply Co. and Lowe’s. “All of us in the pellet industry want the market to grow,” Stringer says. “If customers can’t get pellets, they won’t buy the stoves and it hampers growth in the industry.”

Supply shortages are part of any growing market, but the business of residential wood pellets is different than many other, more predictable industries. It’s an emerging market that is based on unpredictable events such as oil and natural gas prices, the housing market, weather, the economy and even politics.

“The past year has been difficult with supply and demand,” says James Mayer, salesman for PelletsNow LLC, a third-party distributor of pellets in the Northeast supplied

by Maine Woods Pellet Co. LLC. “Demand is greater than supply and it’s hard to meet the needs of our customers the way they want to be met.” He says while demand usually slows down in spring and summer, this season it hasn’t.

PelletsNow has a retail network of

150-plus small businesses in the Northeast.

According to data from a recent Pellet Mill Magazine distribution survey, less than 50 percent of respondents’ annual production is sold to big box stores, leaving a majority of domestic market sales to smaller retail outlets.

“We don’t deal with big box stores, mostly just mom-and-pop stores,” Mayer says. “We have a couple of retailers that have five or six locations, some have four that do 10,000 tons out of one retail location.” He says the small retailers in his network really distinguish themselves by getting to know their customers and the product, and by delivering product to the customers’ homes—even bringing a pallet jack to the customers’ driveways or helping hand-stack product.

Dejno’s Inc. operates a 40,000-ton pellet facility in Kenosha, Wisconsin, and has a fleet of 35 trucks and 600 trailers to deliver its Dejno’s brands of hardwood blends and softwood blends. “We’ve been in business for 10 years and we’ve seen the ups and downs— the times of extra supply and then crisis management where everyone’s out,” Dejno says. Located between Milwaukee and Chicago, Dejno’s pellet facility doesn’t have a dryer, so the plant doesn’t process green product the way other facilities do. It receives sawdust directly from suppliers such as sawmills.

Dejno says pellet shortages in stores are oftentimes beyond the retailers’—and his— control. “Weather, propane and petroleum price spikes, or a housing market downturn where the raw material is not available—

28 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

MARKET »

SPECIAL DELIVERY: Dejno’s Inc. uses its fleet of 35 trucks and 600 trailers to deliver its hard and soft blends of wood pellets to retailers within a 150-mile radius of its mill in Kenosha, Wisconsin. Vice President Larry Dejno says buyers need to be aware of the market risks that retailers face when not building up inventory on their end.

PHOTO: DEJNO’S INC.

SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 29

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AWAITING PICK-UP: Somerset Pellet Fuel’s bagged product is sold to big box stores such as Lowe’s and Tractor Supply Co., both of which declined interviews with Pellet Mill Magazine.

PHOTO: SOMERSET PELLET FUEL

there’s always a reason,” he says. “But from my perspective, there’s no doubt it’s not a pellet production capacity issue. No one in the industry thinks that. It’s not a capacity issue— except when the market gets to crisis mode and then it’s a matter of playing catch-up.”

He says in times of tight supply the industry does tend to see pellet mills pop up to meet growing demand, but then there’s a glut and facilities that aren’t the lowest-cost producers shut down. “I do wish the market didn’t have the ups and downs it does,” Dejno says. “It could be a good, stable, dependable

business model, but we have to contend with these factors that make it fluctuate wildly. But fundamentally, I don’t think it’s a production capacity issue.”

Stringer says it’s less about production capacity and more of a raw materials supply issue. “Having the raw material source, especially a quality supply of sawdust, is critical to efficient production and to making a quality product,” he says. “So, in my view, it’s all about raw material supply. I can build a plant, but without raw materials, it doesn’t operate.”

Sally Goossen owns Green Friendly

Pellets LLC, a 17,000-ton mill in Plainview, Minnesota. The plant has moved several times since it opened in Balsam Lake, Minnesota, in 2008. From there it was relocated to New Richmond, Wisconsin, and then to Plainview, Minnesota, and it may soon be moving again to either a reservation in North Dakota or near Bemidji, Minnesota, to be closer to feedstock.

Like Dejno’s and Somerset, Green Friendly Pellets doesn’t have a dryer so the facility takes in prepped sawdust. Goossen says in New Richmond, the company dealt more with retailers but since moving to Plainview, it does more wholesaling. In addition to its own production and labels of PennyWise and Green Friendly Pellets, her company buys product from Spearfish Pellet Co. LLC and bags and sells it under the Stall Pro brand. She wholesales product to a distributor, Industrial Builders, which sells to hometown retailers such as Ace Hardware stores. Goossen also notes the pine pellets from Spearfish, South Dakota, are used as an absorbent in the shale fracking industry on the completion side.

As to why the industry experiences shortages at times, Goossen says there’s “a lot of little things happening” that affect supply and demand. For starters, the growth in pellet stove users has been “dramatic,” she says. “A few years ago in my home town of Balsam Lake, no one had a pellet stove. Now everyone in my neighborhood has one.” She also says

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MARKET »

that additional outlets for pellets, such as the use in oil fields or even oak heating pellets for barbeques, increases demand and tightens supply. “The Lumberjack brand, instead of having 20 semiloads a month for heating pellets, they’re now being distributed as barbeque pellets,” Goossen says. She also mentions that a few plants have closed in Minnesota, which has affected supply. “Demand went up, but production didn’t,” Goossen says. Finally, Goossen notes that a lot of mills have been, or are being, developed in the Southeast to satisfy European demand. “That wood waste could be used for the U.S. market, but it’s used for pellets that are going to Europe,” she says.

The biggest variable, according to Mayer, is the price of oil and natural gas. “When it goes down, people are less apt to use wood pellets,” he says. “When it goes up, they’re more apt to use wood pellets. So what’s going on with the fuel market—and politics—is big.”

Alleviating the Pinch

So, with factors beyond anyone’s control such as energy markets, politics, the economy, housing and export markets, expanding uses and the weather, how can producers, distributors and retailers better predict the market to keep shelves stocked without holding too much inventory?

“You can never forecast to a tee,” Mayer says, “but if you look at last year’s numbers,

FULL THROTTLE: At Somerset Pellet Fuel, Paul Stringer, vice president of sales and marketing, says there is always more demand for its premium wood pellets than it can deliver.

PHOTO: SOMERSET PELLET FUEL

including spring and summer sales, the mills that are online, supplies and oil prices last year, weather forecasts and the economy, then 50 to 75 percent of the time you can do a decent forecast.”

Capital and storage space are two major problems with keeping retailers adequately stocked, according to Mayer. “No one wants to sit on product for more than a month or two,” he says.

When weighing which situation is worse— not having enough product to meet demand or stocking too much inventory—Dejno says it

depends on point of view. “It’s worse not to have product,” he says. “From our perspective, it’s worse to have retailers’ expectations of your capacity and inventory, and not being able to perform. Either their expectations were wrong or their numbers on what you can do are wrong. There’s not a shelf life on this stuff, it doesn’t expire. Sure it costs money to carry over inventory, but it’s not like it is spoiling.”

According to data gathered from Pellet Mill Magazine’s distribution survey, nearly 24 percent of producer-respondents offer storage for their customers’ off-season purchases at

SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 31

« MARKET

a fee, and nearly 22 percent offer storage at no fee. The remaining 55 percent offer no storage. Dejno says occasionally he stocks inventory for his customers if they don’t have the storage space. “They don’t want to be left shorthanded,” he says. “Sometimes if they do a prebuy we’ll stock more inventory for them.”

Mayer says transportation and storage are the biggest variables and the largest cost. Using PelletsNow’s partner, Quest Transportation, the company drops product directly from Maine Woods Pellet Co. to retailers. “Storage has always been something we have looked at, but it’s a lot of cost,” Mayer says.

Buying early can help alleviate the supply crunch later in the season. “We’ve had more customers this year make an effort to put their orders in early,” Mayer says, adding that some of them have already ordered one-third to onehalf of their predicted supply for the upcoming season. Goossen says for the pine pellets used as absorbents in oil fracking operations, orders have been put in six months ahead of time to ensure supply.

She says the issue with the local hardware

stores comes down to risk of investment, noting that last year there were a few stores in Hudson and St. Croix Falls, Wisconsin, that were out of pellets for weeks, which surprised her considering natural gas prices were so low.

“For them, they would have to buy through a distributor and purchase a semiload at a time, so the company is putting out this money up front hoping that the local customers come there to buy [versus going to a big box store],” Goossen says. “They’re putting up this investment and hoping they’ll buy at 25 cents more a bag or $1 more a bag from the local place, and now you’re housing 24 pallets outside and trying to keep them from the weather, or rodents. So the biggest complaint I hear is putting up $4,000 in August and maintaining a semiload of pellets, but come January they may be out, and if they order more and pay a premium for that, and have to turn that price over to the consumer, they will go to a big box store like Menards. I’ve seen it happen.” She says Menards has called her a few times in the past month. “They’re anxious for pellet purchasing in the upcoming season,” she says.

32 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2015

“This is a business that requires investment,” Stringer says. “Clearly, for the manufacturer, you are holding a lot of pellets in the summer so that you can meet the demand in the winter. It is a cash investment that you have to make, in my mind, to be a good supplier.” For retail, Stringer views it the same way. “The best suppliers can afford to invest in pellets when they get them in the summer months, or at least the months prior to winter and they stock up,” he says. “Otherwise, they are going to be caught up in the scramble that we see each year. I don’t think there is a magic solution for that. It is the business.”

A piece of advice Dejno offers retailers that want to alleviate the madness when demand is crazy and supplies are tight is to keep the good buyers employed. “That’s the reason we run into issues—when we’re dealing with a new buyer,” he says. “We don’t do a whole lot with big box stores, it’s mostly small retailers such as garden shops and independent businesses. There are only a few big box stores we regularly work with, but when they have a changeover in responsibilities it feels like we’re

MARKET »

reeducating them all over again. When there’s a shortage, they scramble and buy stuff going into next year. When they’re comfortable and supplied well, they’re not interested in putting in inventory for the next season.”

Retailers carrying multiple brands might also help offset tight supplies in the heating season. Mayer says some of the retailers he services sell several brands. “That’s good— they need a diverse line of products,” he says.

Dejno says many retailers have realized that more brands are better because it helps with fluctuation. “What we find is when a retailer is short on a brand and orders are way behind, we get a lot of calls in those times of shortages,” he says. “We don’t take on new customers at that time. We call them back in the off season so we don’t deplete our inventory.” Many of his customers have been with the company for five to 10 years, and Dejno says he doesn’t want to short loyal, long-term customers to satisfy new orders.

Ultimately, the best solution to tight supplies of pellets during the heating season may boil down to two simple, but very

important, elements: communication and relationships. “We have strong relationships with loyal customers and we agree to target volumes to deliver to each customer,” Stringer says, adding that there is always more demand than he can deliver.

“Once we get into the season, like right about now, the best plan for me is to be in contact with my customers once a week to find out what their customers are saying—are they buying sand, are they buying salt, what’s the consensus,” Mayer says. “Then they ask me what’s going on with the mill and ask if there are any changes. That way the retailers know and they aren’t out of the loop.” Mayer says there needs to be better communication on all ends—between pellet manufacturers, wholesalers, retailers and home owners; and even between pellet producers, wholesalers and stove manufacturers. “I enjoy talking to retailers about trends and forecasts,” Mayer says, adding that he has seven or eight retailers in strategic locations throughout the Northeast that he distinguishes as superior based on their sales.

“I give those guys more than one call a week

and ask them more in-depth questions and tell them, ‘When you get to 50 or 100 calls a week, give me a call.’”

Dejno says, “If you have long-term relationships on both sides, you get used to a comfort level of what is in inventory and onhand vs. what your customers’ expectations are. The more you communicate, the better it is for their situation.” He says at least three points during the year—preseason, in-season and end-of-season—his company has good conversations with its dealer-customers.

“We just learn from each season, and find that comfort level on how to go forward,” he says. “Sometimes the solution is literally communication. The best thing is when there’s a buyer that understands the market risks of not building up inventory on their side.

Everyone wants just-in-time delivery but with this product, it’s about building up inventory on both sides to be prepared for a run.”

Author: Ron Kotrba Senior Editor, Pellet Mill Magazine 218-745-8347 rkotrba@bbiinternational.com

SEPTEMBER/OCTOBER 2015 | PELLET MILL MAGAZINE 33

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