2018 September/October Pellet Mill Magazine

SEPTEMBER/OCTOBER 2018

It’s in the

BAG The Role of Pellet Packaging Page 12

PLUS: Port of Stockton’s

Pursuit of Pellets Page 18

Industrial Wood Pellet Forecast Page 28

www.biomassmagazine.com/pellets

Contents »

EPTEMBER/OCTOBER 2018 | VOLUME 8 | ISSUE 5

Pellet Mill Magazine

Advertiser Index

31 2019 International Biomass Conference & Expo 25 Alfred H. Knight North America 20 Andritz Feed & Biofuel A/S 32 Astec, Inc. 11 CPM Global Biomass Group

Page 12

FEATURES

21 Evergreen Engineering 14 GreCon, Inc. 23 Industrial Bulk Lubricants (a Dansons company) 15 Logistec 22 Lubrication Engineers, Inc. 10 PAL s.r.l.

12 PACKAGING More Than Just Price

Wood pellet packaging is an important interface between producers, retailers and consumers.

By Ron Kotrba

18 TRANSPORT Ready and Waiting

24 Phelps Industries

Highly accessible with ample room for development, the Port of Stockton has its eye on the wood pellet export market.

By Anna Simet

2 Port of Stockton 9 ProcessBarron

CONTRIBUTIONS

17 Q-Team 16 Tramco, Inc.

26 INSTALLATION A Fertile Opportunity for Renewable Heating

An Orford, New Hampshire, office complex built in the 1960s chose to update and simplify its heating system with wood pellet boilers.

By Scott Nichols

COVER

SPR Packaging uses a co-extrusion process to create a multilayer structure in its flexible packaging, downgauging thickness without sacrificing quality.

28 MARKETS Forecasting Industrial Wood Pellet Prices

Rising oil prices over the next decade will have an impact on the price paid per metric ton of industrial wood pellets.

By William Strauss

PHOTO: SPR PACKAGING

04 EDITOR’S NOTE

Pieces of the Puzzle

By Anna Simet

COPYRIGHT © 2018 by BBI International

05 EVENTS 06 COLUMN

Taking it to the e-Streets

By Tim Portz

TM

Please recycle this magazine and remove inserts or samples before recycling

08 COLUMN

The Snares of Pelleting Mahogany Residues

By Holger Streetz

10 BUSINESS BRIEFS 30 MARKETPLACE

07 COLUMN

Barbeque Pellet Quality

By Chris Wiberg

WWW.BIOMASSMAGAZINE.COM/PELLET 3

« Editor's Note

Pieces of the Puzzle

Anna Simet

EDITOR asimet@bbiinternational.com

By the time a wood pellet reaches the inside of a stove or boiler, it has taken quite a journey.

That typical journey involves many steps, each of which has considerable influence on a pellet manufacturer’s bottom line. This month’s issue of Pellet Mill Magazine highlights some of these upstream/downstream handling steps and processes, which, of course, vary depending on the intended use of the pellet.

Last week, I ordered a headband that was delivered to my home in a box that could have fit more than a hundred of them. Not only that, but it had plastic bubble wrap inside (for a headband made of cloth). Sure, it properly protected the headband, but it was incredibly wasteful, and kind of offputting. This is something you won’t see in the wood pellet industry, which doesn’t have that wiggle room for wasteful packaging practices, and also has to be mindful of the impression the packaging makes on consumers. This is emphasized in Ron Kotrba’s page-12 feature, “More Than Just Price,” for which he had an interesting discussion with Appalachian Wood Pellets’ Don Wagner, who explains what’s important to his operation when it comes to protecting its product. Wagner says that lower prices aren’t necessarily what pellet manufacturers want. When presented with much better deals, he says, that is usually an indicator that corners have been cut, and that’s something producers serving the domestic market shouldn’t risk. Says Wagner, “The bags are the delivery vehicle of my products. It’s what the consumer sees, so it must look good, but the No. 1 thing is, it must perform well—it must deliver the product to the stove intact.”

Moving the focus to the industrial pellet market, I had a conversation with the Port of Stockton’s Peter Grossgart, for “Operation Diversification,” on page 19. After a stark realization that it must expand its cargo base, the port has had its eye on the industrial wood pellet market for years, and has been working to attract a manufacturer interested in shipping product to Asia.

Grossgart told me all about the port and what it has to offer a potential producer. In an increasingly competitive port market—which is also true in Canadian vs. U.S. wood pellet exports—expanding to handle nonconventional cargo that is in high demand by overseas customers can give some ports a leg up over others, if all the pieces of the puzzle come together right. Whether a scenario such as this, or one involving getting product into a home or business, it’s important to get each of these puzzle pieces right, as one misstep could result in a setback or failure.

Finally, I would like to mention Tim Portz’s column on page 6, in which he discusses the Pellet Fuels Institute’s first-ever social media beta test. This is being done to better understand customers—what they want and need, how to reach them, and how to get them to choose wood pellet heating appliances. The consumer is the ultimate driver of all steps of the journey, and I have no doubt the test will yield some valuable and interesting results.

4 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

Industry Events »

USIPA's Exporting Pellets Conference Editorial

PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com EDITOR Anna Simet asimet@bbiinternational.com SENIOR EDITOR Ron Kotrba rkotrba@bbiinternational.com STAFF WRITER Patrick C. Miller pmiller@bbiinternational.com ONLINE NEWS EDITOR Erin Voegele evoegele@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

Art

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Raquel Boushee rboushee@bbiinternational.com

Publishing & Sales

CEO Joe Bryan jbryan@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 CIRCULATION MANAGER Jessica Tiller jtiller@bbiinternational.com MARKETING & ADVERTISING MANAGER Marla DeFoe mdefoe@bbiinternational.com MARKETING & SOCIAL MEDIA COORDINATOR Dayna Bastian dbastian@bbiinternational.com

EDITORIAL BOARD

Stan Elliot Pacific Coast Pellets Bruce Lisle Energex Corp.

Derek Nelson Forest Business Network T.J. Morice TNT Ventures LLC Tim Portz Pellet Fuels Institute

October 8-10, 2018 The Ritz-Carlton Chicago Chicago, Illinois

Join CEOs and executives from leading U.S. pellet producers, developers, trading houses, ship brokers, equipment manufacturers, and more for 3 days of networking and discussions on significant industry developments and issues.

(804) 775-5894 | www.theusipa.org

POWER-GEN International

December 4-6, 2018

Orange County Convention Center Orlando, Florida

We're a 30-year-strong power generation event with diverse content for all forms of energy - with a multi-track conference summit and knowledge hubs, a huge exhibition with 900+ companies and comprehensive networking and matchmaking.

The topics and trends focus on technology, innovation and policy advancements - unmatched insight for the future of the energy spectrum and mix. More than 200 industry experts will present new solutions and innovations for the future in more than 70 conference sessions broken up in 12 tracks offering full conference attendees a chance to earn Professional Development Hours (PDH).

888-299-8016 | www.power-gen.com

2019 International Biomass Conference & Expo

March 18-20, 2019

Savannah International Trade & Convention Center Savannah, Georgia

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 onestop shop—the world’s premier educational and networking junction for all biomass industries.

(866) 746-8385 | www.biomassconference.com

Subscriptions to Pellet Mill Magazine are free of charge—distributed bimonthly—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 701-746-5367. 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.

WWW.BIOMASSMAGAZINE.COM/PELLET 5

« Column

Taking it to the e-Streets

BY TIM PORTZ

This heating season, the Pellet Fuels Institute is launching a social media beta test in selected markets across the country in an effort to increase consumer awareness of wood pellets as an option for residential heat. This effort is the PFI’s first salvo in a broader initiative geared toward increasing the frequency of consumers selecting a pellet-burning appliance when choosing a new heating option for their home, outbuildings, barns or businesses.

By the time this edition of Pellet Mill Magazine reaches your desk, targeted ads featuring pro-pellet messages will be delivered to the Facebook and Instagram accounts of consumers that match a targeted profile in select markets across the pellet-burning regions of the U.S. Our beta test is already yielding important lessons, and giving the organization a line of sight on the dizzying social media universe. At the top of the list is the simple realization that, vendor-sponsored content plays a huge role for retailers in their social media programs. Putting messages in front of consumers’ eyeballs requires resources, and increasingly, retailers are asking for the manufacturers of the SKUs (stock keeping units) available at their locations to carry some of those expenses. Many of the country’s biggest brands have already realized that once a consumer enters a retail outlet, they are bombarded with choices, and make brand decisions for everything from fertilizer to work gloves and everything in between, including heating appliances. Savvy manufacturers are learning that anything that can be done to predispose a consumer to favor their product over others should be done. Of course, this has always been the game, but clearly, the field of play is changing, and presently, social media platforms are where consumers’ attentions are fought over.

Our social media test will serve as a signal to our retail partners that the PFI is actively working toward a better understanding of the wants and needs of the consumers that use our product, the ways in which those consumers can be reached, and the messages most likely

6 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

to move them to take the action we want—the purchase of a pellet-burning appliance. Interestingly, throughout the test, the PFI brand itself will not be featured prominently, if at all. Additionally, the brands of our sponsoring members will not be featured, and everyone will take a back seat as our messages seek to move people toward a pellet decision with no tie to a specific brand.

This strategy closely aligns with our belief that every pellet appliance sold increases market demand, and our members are eager to and capable of competing for that new market share. That said, I won’t be surprised if our members begin to apply the lessons we learn during our brand-neutral test to raise consumer awareness for their brands in campaigns of their own. In fact, I fully expect that will happen.

Finally, our social media beta test marks the beginning of a new era in consumer outreach at the PFI. Our board and membership agree that it behooves our organization and the industry to learn as much as we can about consumers in the market for a space heating solution.

What ultimately drives their decision-making process, and what messages are effective at achieving a pellet appliance decision? Social media platforms aren’t the only pathways available to us to reach consumers, and many of my members are quick to remind me of this—by no means is this test an indication that the PFI is taking a digital-only approach to consumer engagement. Still, the sophistication of the platform, the ability to measure consumer reactions and the price-friendly budget made it a slam-dunk place for the organization to start.

Author: Tim Portz Executive Director, Pellet Fuels Institute tim@pelletheat.org 651-398-9154

Column »

Barbeque Pellet Quality

BY CHRIS WIBERG

From when I first got involved in developing wood pellet standards back in 2005, I recall clients calling to inquire about BBQ pellet standards, and if there were any testing requirements to confirm the quality of the product as a fuel for cooking. Since then, I don’t believe even a whole year has passed without at least one or several similar inquiries. The conversation is always the same. Since BBQ pellets are being used as a fuel to cook food, there is probably something that should be tested or evaluated to verify that BBQ pellets are a healthy fuel to use, and not inordinately causing some type of health risk. While this logic has remained sound, to this day I am not aware of any published quality standards or other requirements for manufacturing and using BBQ pellets.

In 2005, BBQ pellets were not nearly as popular.

There were a few companies manufacturing them, but it was relatively uncommon. Fast forward to 2018, and BBQ pellets are being made by numerous companies, and the market has expanded significantly. The topic of BBQ pellets is now something that comes up regularly in publications, at conferences, and in routine conversations. Despite their increase in popularity, the same information holds true, in that, to my knowledge, there are currently no published standards or any other known guidance for manufacturing and using BBQ pellets. This is an issue that has been recognized by the Pellet Fuels Institute, and the conversation of BBQ pellets has begun in concerted fashion with the formation of a PFI BBQ pellet caucus.

The efforts are intended to cover all aspects of this burgeoning industry, so if you are interested in being part of the conversation, then I encourage you to contact PFI to see how you can get involved. As a standards developer, I have offered my assistance if it is ultimately decided that BBQ pellet standards are needed.

Independent of an actual BBQ pellet standards project, I have been asked my opinion enough times that I want to convey some of my thoughts in this column.

Here are a few things that come to mind when I think of BBQ grilling pellets in the context of human health, product quality and product representation.

In my opinion, the human health aspect is the most important, but this part of the conversation needs to be qualified. Wood smoke is known to be a risk to human health, so grilling with wood pellets inherently includes exposure to smoke, but similarly, so do camp fires, charcoal grilling, or even the smoke created from cooking, no

matter what the fuel. These types of exposure to smoke are socially accepted, and should not be the focus of the human health discussion. It is more important to focus on preventing situations that could result in unnecessary risk of exposure to something unintended or unexpected. Similar to heating pellets, in my opinion, producers should provide a very high level of assurance that there are no chemically treated or otherwise contaminated materials being used to manufacture BBQ grilling pellets.

Product quality is another area that should be reviewed. When developing the standards for heating pellets, the PFI Standards Committee collaborated with appliance manufacturers to assess how pellet stoves function, and equally important, what could cause them to not function properly. The quality parameters found in the PFI standards are largely based on this review, and were designed for optimum performance of the appliance. A similar effort should be conducted to verify what’s important to the function of a pellet grill. Based on this type of assessment, it could be determined if the same properties as heating pellets are desirable for pellet grills, or if there are other parameters that need to be managed.

Finally, there are different schools of thought when it comes to opinions about what BBQ pellets should be.

One might think that a mesquite pellet should just contain mesquite, yet optimum grill performance and flavor may be achieved with a certain percentage of mesquite, with the balance being other types of wood. Additionally, some products use flavoring rather than a specific type of wood. I don’t see it as my place to say one school of thought is better than another, however, I will offer that since this market is still young, it would be wise for the industry to review these different approaches and come to a consensus as to how these various products should be represented to the consumer.

I will be very interested to see what comes of PFI’s BBQ pellet caucus, and to help where I can. I am hopeful that it will help to grow the use of BBQ pellets, and prove to be a significant opportunity for the wood pellet manufacturing industry as a whole.

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

WWW.BIOMASSMAGAZINE.COM/PELLET 7

« Column

The Snares of Pelleting Mahogany Residues

BY HOLGER STREETZ

Following my introductory column in Pellet Mill Magazine, I received some direct feedback from an unexpected place: China. Not only does China plan on increasing its wood pellet consumption for cofiring at coal power plants, like other Asian countries, it is also busy building pellet plants. From what I learned from my conversation with a plant manager of a pellet plant in inland China, there are more variables to take into account when it comes to different types of wood. We all know how to handle soft wood like pine and spruce, and even hardwood such as oak and beech, but what about mahogany residues, in a mixture of two-third wood chips and onethird dust? With a Brinell hardness of 3.1 N/mm2, mahogany is almost as hard as oak (3.5 N/mm2) and beech (3.7 N/mm2). The big difference is that mahogany is a very oily wood, and therefore more difficult to pelletize.

The high oil content does not allow high moisture levels.

However, with low moisture, dust emissions increase, and cause a drop in efficiency of the production, decreasing pellet quality and increasing the risk of fire. So what to do?

Adding binders like starch is not a solution, because these binders don’t bind dust. However, there is a company that soon will be offering a dust-binding additive for wood pellets. Moisture level adjustment is one method of regulating dust, but there are restrictions to the moisture level—not only from a pellet standards point of view, but also because buyers don’t want to pay for water. One way to get to a better product is to improve pretreatment. Installing a mixer prior to the feeder homogenizes the material, and thus leads to well-mixed feed for the pellet mill.

Due to biomass-supporting political framework, Japan and South Korea are currently the main drivers in the Asian biomass market, and have grown exponentially since 2012. With imports of 2.4 million metric tons of pellets, South Korea leads the Asian biomass demand.

8 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

More than 80 percent is delivered from Southeast Asia, with Vietnam as the leading supplier for palm kernel shells, which make up a substantial amount of woody biomass used in Asia. Japan’s wood pellet demand of half a million metric tons annually is mainly supplied by Canada (71 percent). However, with 1.4 million metric tons, PKS account for the vast majority of biomass.

The positive trend in the Asian biomass market will continue for the longer-term, as the greener policy will not change in the short-term, and because the go-ahead has been given to six new biomass power plants.

I look forward to more feedback and questions for discussion in my next column.

Author: Holger Streetz International Operations Manager, Bathan AG h.streetz@bathan.ch +491-735918-550

2770 Welborn Street Pelham, AL 35124 205-663-5330 www.processbarron.com

Bulk Materials Handling

Air & Gas Handling

h Solid Fuel Receiving, Storage, & Delivery h Fuel Storage and Metering Bins h Circular & Traveling Screw Reclaimers h Screw & Drag Reclaim Systems h Fuel Screening & Hog Towers h Custom Belt, Screw, & Drag Conveyors h Complete Turnkey Systems

h Centrifugal Fans h Fan Balancing & Vibration Analysis h Dampers – Control & Isolation h Expansion Joints – Fabric & Metal h Mechanical Dust Collectors h Ductwork & Stacks h Economizers & Air Heaters h Bulk Materials Handling

Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

Froling Energy joins BTEC On August 10, Froling Energy, a Peterborough, New Hampshire-based company specializing in biomass boiler systems installations, joined the Biomass Thermal Energy Council.

Froling joins the organization at a critical time for the industry, according to BTEC, which is working to expand and improve the Community Wood Energy and Wood Innovations Program in the Farm Bill. Froling has extended its support to BTEC to improve the CWEIP and has signed onto a coalition of BTEC members pushing for expansion of the program in the upcoming negotiations between House and Senate conferees.

IMALPALGroup_PelletMill_2018_Set-Oct.pdf 1 07/09/2018 09:09:09

10 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

Pinnacle to enter U.S. pellet market Canadian pellet manuAliceville, Alabama facturer Pinnacle Renewable Holdings Inc. announced it has entered into a definitive agreement to acquire a 70 percent interest in an operating industrial wood pellet production facility located in Aliceville, Alabama, from The Westervelt Co. Westervelt will retain a 30 percent interest in the Aliceville facility.

The plant has an annual production capacity of approximately 270,000 metric tons of industrial wood pellets. Approximately 210,000 metric tons per annum is committed under a long-term offtake contract to a major European utility.

As part of the transaction, and consistent with Pinnacle's operating strategy, the Aliceville facility has now entered into longterm wood fiber supply contracts for residuals with several large local sawmills. Westervelt's sawmill, located in Moundville, Ala-

Business Briefs Âť

bama, will remain an anchor supplier, ensuring strong alignment between Pinnacle and Westervelt.

The transaction, subject to customary closing conditions, is expected to close in early October.

Drax completes headquarters transition Drax Biomass Inc. has completed its headquarters move from Atlanta to Monroe, Louisiana. Initiating the process earlier this year, the company has been building its new corporate staff, which is now located on Tower Drive in Monroe. “From an operational standpoint, we are well positioned to manage our three compressed wood pellet plants and the port operations in Baton Rouge from our new headquarters in Monroe,� said Greg Martin, Drax Biomass chief operating officer. “We’ve been really pleased with the caliber of talent and experience we’ve been able to retain and hire.�

Drax Biomass employs about 65 people in Mississippi and 190 in Louisiana, about 20 of whom are now located in the Monroe office.

Siemens contracts with Drax Drax Power, which operates the biggest power station in the UK, has signed a new ÂŁ40 million contract with Siemens for the upgrade of turbines on three of its biomass units over the next three years. The upgrades will deliver efficiencies, as well as maintenance savings, which will cut the cost of biomass electricity production at the plant in North Yorkshire.

The work will start in 2019 and take three years to complete, with one biomass unit being upgraded each year as part of its planned major overhaul. The efficiencies will be gained by fitting new, high-tech pipework and valves, with new, high-efficiency blading and long-life seals within the turbines on biomass units 1, 2 and 3.

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 asimet@bbiinternational.com. Please include your name and telephone number in all correspondence.

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« Packaging

MORE THAN

JUST PRICE While costs are important to any manufacturer, many other factors are involved when wood pellet producers choose a packaging supplier.

BY RON KOTRBA

F

or wood pellet manufacturers who bag their product for resale, the packaging is an important interface between their product, retailers and consumers. As important as this is, the bag is also a vital part of the distribution infrastructure and quality control.

“To me, it is part of the overall quality of my product,” says Don Wagner, general manager of Appalachian Wood Pellets Inc. “I see the relationship I have with my packaging supplier as one of the most important relationships I have. The bags are the delivery vehicle of my products. It’s what the consumer sees, so it must look good, but the No. 1 thing is, it must perform well—it must deliver the product to the stove intact.”

Appalachian Wood Pellets uses Trinity Packaging as its packaging supplier.

“Their quality and service is why I use them,” he says. “I pick up the phone and call them, and the next day I have bags on my site. That’s what’s important to me. They’re part of my operation—a very important part. You get the best you can get, and stick with it.”

Wagner has been in the pellet business for 15 years. Before that, he was in sales. “I’ve been a salesman my entire career,” Wagner says, “and one of my biggest frustrations is salesmen from other companies who think price is the only issue. It’s a commodity business. Most people approach it from a price perspective—‘If I can save them a penny a bag, I can get their business.’ One of the most annoying parts of my job is there are hundreds of film companies that think all they need to do is walk through my door or get me on the phone and promise me a lower price.”

Appalachian Wood Pellets uses 2.5 million bags a year, so a penny per bag adds up. “But that’s not the most important thing to me,” Wagner says. “What is most important to me are quality and service. Yes, it has to be priced correctly, but in the plastic film industry, it’s a commodity, so they all pay the same amount for resin by weight. If someone wants to come in and offer a price 25 percent less, I will not even consider it. The only way they can do that is by cheating. I get 2.75 mil (thickness) bags from Trinity. If get a 1.75 mil bag, the consumer’s fingers go right through it. So my No. 1 thing is quality. I’ve dealt with other suppliers, if someone undercuts the price by a large amount, then it’s because they’re cheating. We’ve tested other bags and that’s what we’ve al12 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

Mondi Group’s extrusion coatings, shown here in a production plant in Austria, are used to line a novel wood pellet bag design that has sustainability in mind.

Venting and chemical isolation on bucket elevators and silos at pellet plant PHOTO: MONDI GROUP PHOTO: CV TECHNOLOGY

WWW.BIOMASSMAGAZINE.COM/PELLET 13

« Packaging ways found. We have found our vendor with good, consistently high-quality bags. That’s way more important to me than a penny a bag.”

Vendor Perspective Trinity Packaging, along with PolyPak Packaging, did not respond to requests to participate in this article. Novolex’s Shields, TNT Plastics and Midwestern Bag declined speaking with Pellet Mill Magazine, and Primary Packaging was unable to interview before deadline. SPR Packaging, owned

by Spain’s Armando Alvarez Group, and Europe-based firm Mondi Group, however, did agree to share their perspectives on wood pellet packaging.

SPR Packaging was founded in 2006 and completed its 180,000-square-foot manufacturing facility in North Texas in 2008. “It was a greenfield manufacturing site built for the manufacturing of flexible packaging,” says Trevor Wells, product manager with SPR Packaging. “All the equipment is brand new and state of the art.” In 2014, SPR Packaging was acquired by the Armando Al-

varez Group, a diverse European company that owns 15 manufacturing centers, including its own biomass power plant. Since the acquisition, capital investments have been injected into the relatively new North Texas flexible packaging manufacturing facility for upgrades and product improvements. Wells says SPR Packaging first dove into the wood pellet market in 2010, and now serves some of the largest pellet manufacturers and distributors in the U.S. “Principally, we are a vertically integrated manufacturer,” Wells says. “We extrude all of our polyethylene films on-site, make printing plates, and print up to 10 colors. We can send rollstock, or convert a variety of open-mouth, premade bags.” Wells says it is SPR Packaging’s services that set it apart from other plastic providers. “The technologies we employ here and our capabilities are different than other manufacturers in the U.S.,” he says. “We also consult with customers on how to improve packaging and sizing. We run tests to be the most costefficient while also making the bags more attractive and effective. We have sales rep-

14 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

resentatives visiting different plants to help with their processes. On the other side, we can consult and design bags. And we can cut costs if need be.”

Being in the weather, and stacking pellet bags—moving them from place to place— can make for an abrasive journey, which can rub off ink and make bags less attractive at the retail level. Wells says to accommodate the harsh environments, bag designs and prints are getting more complex. “We are able to add our GPT energy-cured varnish, which adds gloss and provides ink protection,” he says. “This gives a special aspect to the bags. It makes them glossier, shinier— giving them a more premium look. Matte finishes are also available. That’s important, especially with barbecue pellets, which are more retail-oriented for higher-end brackets.” Since the bags may sit in outdoor environments for long stretches, SPR Packaging uses an ultraviolet inhibitor, which helps prevent degradation from sunlight, as well as specific inks designed for outdoor environments to provide fade resistance.

Packaging » Sustainability Wells says one of the biggest changes in pellet packaging has been downgauging, or moving from thicker to thinner films without sacrificing quality. “When we entered the market, thicker films were more common,” he says. “But now, with the way the market has gone, big distributors like WalMart are encouraging suppliers to use less materials in packaging. That’s a major impetus for change.” The less polyethylene used in manufacturing, the less material enters waste or recycling streams.

Thinner material doesn’t necessarily mean a weaker bag, Wells says, given the advent of newer, stronger resins and manufacturing techniques. “Here at SPR Packaging, our co-extrusion process produces a multilayer structure with three to five layers, which means we can create a thinner, stronger bag,” Wells says. “Plus, it cuts costs on a per-bag basis.”

In 2014, Mondi Group, an international packaging and paper company with 100 production sites in 30 countries, developed the concept for natural packaging for wood

SPR Packaging, acquired by Spain’s Armando Alvarez Group in 2014, has a state-of-the-art, 180,000-square-foot flexible packaging manufacturing facility. Located in North Texas, it was built in 2008.

PHOTO: SPR PACKAGING

pellets. Mondi Group is based in Europe, where single-use plastics are under increased scrutiny. “In Europe, there’s a huge discussion on recyclability,” says Verena Schnedl,

marketing manager for Mondi’s extrusion coatings segment. Out of this discussion, and through forecasting future consumer demand, came the company’s Skog natural

WWW.BIOMASSMAGAZINE.COM/PELLET 15

« Packaging create functionality,” she says. While the Skog packaging is entirely renewable, Schnedl points out that it is not biodegradable. “We want customers to be able to store it without breaking down,” she explains. “Making pellet bags biodegradable is a decision that would not make sense.”

Being a new and different product, Skog packaging is slowly being acThrough a co-extrusion process, which creates a multilayer structure, SPR cepted by pellet proPackaging has been able to downgauge its packaging thickness without ducers. “There are sacrificing quality.

PHOTO: SPR PACKAGING believers and nonbelievers,” Schnedl packaging. “Skog” is the Swedish word for says. “It’s different. What we see is people “forest.” Schnedl says, “The idea was to find are skeptical. They like it, but they are skepa packaging solution for pellets that also tical.” One major aspect pellet producers are doubtful of is whether the material can run comes out of wood.”

Mondi Group’s Skog packaging is pa- in their existing form-fill-seal (FFS) bagging per-based with an extrusion coating made machines. “To overcome this skepticism, of biopolymers. Schnedl says using a bio- seeing is believing,” Schnedl says. “We propolymer coating to line its paper packaging vide potential customers a test reel to try on simply makes sense from a marketing per- their machine. Once we prove to them it can spective. “Extrusion coating is a technology run on their existing machines without inwe use to combine different substrates, to vestment, they are more accepting.” She says

only minor amendments to their equipment, such as adjusting the sealing temperature, must be done. Skog packaging, however, cannot use a window in the bag necessary to see the product, as some countries may require. “You cannot do this with paper,” Schnedl says.

An unanticipated benefit of Skog packaging is its stackability. “It has to do with friction,” Schnedl says, “and the ability of paper to form better. It was unexpected for us. But when we saw the bags on a pallet, they were more stable and didn’t move that much. It makes the whole pallet more stable.”

Schnedl says the product, made in Sweden, has been thoroughly tested. “Sweden gives really good conditions to test in winter,” she says. “We have a good product, and we believe this whole plastic discussion will pick up in other countries.”

Price-wise, Skog packaging compares more to thicker plastic films. “For us, this is not a product that will get market share because we are cheaper,” she says. “It’s more of a mentality product, so to speak. If you believe in paper, then this packaging is a natural product compared to one made from crude oil. What we see is our customers who use Skog packaging see a benefit for their brand. Customers normally use it for their premium brands, as it doesn’t make as much sense for their lower-quality product.”

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Packaging » Wells says SPR Packaging is on the forefront of sustainability issues in the U.S. “Our headquarters are in Europe, where these initiatives have taken hold,” he says.

“We have experience in these markets for recycled materials and biopolymers. Here in the U.S., we are not using recycled materials in our pellet film. Recycled material of acceptable quality can be difficult to source and is more costly than prime, virgin resin.”

Wells says if consumers demand plastics made from renewable or recycled materials, SPR Packaging can accommodate their requests. “The challenge is the cost,” he says.

“I have a lot of experience with bioresins,” Wagner says. “They have great applications, but I’m not sure this is one of them. Bioresins allow the material to decompose. We are on the opposite end. Our bags have UV inhibitors so the sun doesn’t break down the bags. Most inventory at the retail level is stored outside in the sun. Biopolymers would break down quickly in that environment.”

Out of the hundreds of thousands of tons Appalachian Wood Pellets has sold, Wagner says he may have gotten two phone calls over the years asking about whether his wood pellet bags are made of renewable or recycled materials. “The bags are recyclable,” he says, “so we do encourage that. And we recycle everything here at the plant.” Wagner adds that while his current bags do not display the chasing arrows symbol to indi-

cate the bags’ recyclability, he plans to add it the next time changes are made to the print design. “We don’t change artwork often,” he says. “If you have a brand, you run it for years. But the next time we do plate changes, we will put the recycle logo on the bags.”

Wells says SPR Packaging’s focus is helping tell the complete story for pellet manufacturers about renewable energy.

“We’re on the same team as pellet manufacturers,” he says. “We’re trying to help them grow, so we’ll do whatever possible to do so.

Our side is packaging, and we continue to take environmental initiatives to make packaging less impactful in a negative way.” In addition to downgauging, SPR Packaging has other, confidential projects in the works, according to Wells. “Pellets are renewable energy, and we want to tell the same story pellet makers are telling. We are always pushing ourselves to be better on the packaging side.”

Fighting Chance When asked what advice he can offer customers to extend the shelf life of their bagged pellet products and the packaging that protects and transports their pellets, Wells says rotation is critical. “First in, first out,” he says. “That goes for the bags before the pellets are packaged, and the filled bags at the plant and in the retailer’s yard.” Wells adds that he always recommends the bags be covered. “Use shrink hooders and stretch

wrap, or pallet caps—anything to add an extra layer of protection to keep the bags in good condition and protected from the elements,” he says.

Appalachian Wood Pellets uses a robot to stack 50 40-pound bags onto a pallet, and then a Lachenmeier machine applies a 4.25mil stretch hooder over the bags for weather protection. “Some use stretch wrap, but that can come off and get moisture between the bags and wrapping, which attracts dust and dirt, and looks bad at retail,” Wagner says.

“The stretch hooder, which we also buy from Trinity, gives the ultimate weather protection. It goes back to quality. For the retailer who’ll store these outside, it provides the best protection they can get to preserve the product so when the end-consumer gets it, it’s in the same condition as when it left the plant.”

Pellet bags are designed to be in the elements. “But give them a fighting chance,” Wells says. “You just don’t know how long the retailer will keep them in their yard. So we recommend taking all the precautions you can.”

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

WWW.BIOMASSMAGAZINE.COM/PELLET 17

« Transport

OPERATIO

DIVERSIFICATIO Multi-highway accessible and a prime location for exports to Asia, the Port of Stockton has acreage ripe for development, 24-7 cargo availability, and wants pellet manufacturers to know it’s open for business.

BY ANNA SIMET

18 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

ON

ON

WWW.BIOMASSMAGAZINE.COM/PELLET 19

« Transport

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E

ighty-five years ago, in 1933, lumber vessel Daisy Gray arrived at California’s Port of Stockton. It was the first ship handled there, and ever since, forest products have been an important commodity to the port. For the past several years, port personnel—many with decades of experience—have been interested in adding another wood product to its cargo offerings: wood pellets. They are confident it has much to offer a manufacturer looking to site a facility there, particularly one with interest in shipping product to Asia.

On the San Joaquin River, the Port of Stockton is an inland facility in the extended Bay area, 75 nautical miles from the Golden Gate Bridge. The fourth largest port in California, it offers immediate access to three uncongested highways: I-5, CA-99 and CA-4, according to Pete Grossgart, sales and marketing manager. “We have tremendous access to I-5, which is the main northbound corridor on the West Coast that stretches from Mexico to Canada, and we are less than a mile from an off-ramp to I-5,” Grossgart says. “We have CA-99 a few miles away, we’re close to the Bay air field and an hour south of I-80, so we really have an excellent location.”

The port has spent almost $100 million on infrastructure upgrades over the past several years, according to Grossgart, including investments in docks, roads, rail, bridges and utilities. These improvements and expansion investments translate into millions of dollars in savings for new development projects, which there is ample room for. “The operating port is roughly 2,050 acres, and of that, we have about 600 available for development,” Grossgart says.

“I believe we have more land available and ready for development than the rest of the ports in California combined. We’re in a really unique situation in that regard. In 2000, we were given Ruff and Ready Island, a former Navy supply depot, and that tripled the size of the operating port. And we have another 2,000 or so acres that haven’t been developed at all, other than dredge placement sites.”

The location and space would be ideal for a pellet manufacturing facility, says Grossgart, who has been exploring the

20 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

'That decision has led to the pursuit of wood pellets—we’re very interested in finding markets that aren’t necessarily niche, but new markets to northern California.'

—Peter Grossgart, Port of Stockton

idea since he joined the port a few years ago from Stevedore Co., and even before then, the port was watching the wood pellet export market.

In Pursuit of Pellets When the financial collapse occurred a decade ago, it was a turning point for the Port of Stockton. “In the midst of the Great Recession, we discovered that one of the major components of our cargo base—construction materials like cement, lumber and steel—took a nose dive,” says Grossgart. “Cement, for example, went from 2.2 million tons in 2006, to zero— and I mean literally zero, in 2009.”

It was then that the decision was made to strategically diversify the port’s cargo base. “That decision has led to the pursuit of wood pellets—we’re very interested in finding markets that aren’t necessarily niche, but new markets to northern California,” Grossgart says. “With wood pellets, you need to be near the fiber basket, and we have that up in the mountains, with the die-off of the sugar pines and other conifers. We also have joint service facility service by both the UP and BNSF railroads, and the port has been refurbishing and adding rail steadily since 2001. We have a plan to further expand its rail capacity in the the next few years.” further expand its rail capacity in the next few years.”

The port also happens to be a special district of the state of California. “This basically makes us our own little city,” Grossgart says. What that means is that the port sets the gate hours, and therefore, it never closes. “If you want to go to your facil-

Port of Stockton Fast Facts • Serviced by Stockton Deepwater Ship Channel with project depth of 35 feet of MLLW (mean lower low water) • 15 berths to accommodate changing ship schedules and a multitude of cargoes; reinforced docks and lay down areas and cargo is handled by highly qualified labor • Over 7 million square feet of warehouse space, with hundreds of acres of land available for future development • Foreign Trade Zone includes facilities located throughout the Stockton; offers a variety of services, allowing more flexibility and diversity than any other zones • Personnel with decades of experience—all port’s service directed by staff through one administrative complex

• Port publishes tariffs, stevedore’s cargoes, assigns berths, supervises cargo activity, provides shipping documentation, accounting and rate quotations • Round-the-clock security, with 24/7 cargo availability, allowing tenants to schedule pickups and deliveries to meet specific schedules • Two Liebherr 550 cranes to handle oversize cargo • Two miles of on-dock rail • Stevedores with appropriate gear • Served by the UP and BNSF railroads • Immediate access to uncongested highways; I-5, CA-99 and CA-4 are adjacent to port properties.

I-580 is 30 minutes away and I-80 can be reached in an hour

WWW.BIOMASSMAGAZINE.COM/PELLET 21

« Transport

22 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

The Port of Stockton is home to 15 berths, allowing the port to avoid congestion and minimize loading waiting time.

PHOTO: VISIT STOCKTON

ity, it’s secure, around the clock,” he says.

You have to go through a gate, but it will never close. We’re open 24 hours, 365 days a year. We have land available near dock, so if someone sited a mill here, they could bring in their logs or chips, process them, and then convey their product to the dock, and it isn’t this immensely long run.”

The 15 berths the port boasts often ensures there is no waiting to load. “We have some that have very high utilization, but given the option, we would site something like this as close as possible to one of the berths with very low utilization, so there would be very little chance of a berth conflict,” Grossgart says.

He adds that the port’s shipping capabilities are a perfect fit with what Japan can handle. “At a conference we went to, we learned Japan can handle Handymaxes with 20,000 to 30,000 tons of pellets, and that’s it—it can’t handle full Panamaxes, and that’s what we see here. We have Panamaxes that can’t be filled all the way, and Handymaxes that we can fill. The limitations in Japan as to what they can handle

in a shipment, it’s perfect for our port—it’s what we do.”

The port isn’t a stranger to biomass energy, as it is actually home to a biomass power plant. “It used to be a coal-fired plant, and about 10 years ago, Detriot Edison took the facility over and spent a tremendous amount of money converting it,” Grossgart says. “It’s a very cool, very clean and high-tech power facility, and we’re proud to have it here.”

There is also an abundant potential biomass feedstock in the region. California is home to more than 129 million dead and dying beetle-killed and drought-stricken trees. While San Joaquin County isn’t one of the 10 high-priority counties—counties that the state’s Tree Mortality Test Force has designated as having the highest number of dead trees—it does shares a border with two of them—Amado and Calaveras, which, according to an April update, are currently home to a collective 1.3 millionplus dead trees, compared to just 15,000 in 2010.

WWW.BIOMASSMAGAZINE.COM/PELLET 23

Pictured is an aerial view of the Port of Stockton. Currently, the operating port is roughly 2,050 acres. Of that, about 600 is available for development.

PHOTO: PORT OF STOCKTON

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24 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

Over the past several years, Gov. Jerry Brown has issued several Emergency Proclamations focusing on the tree mortality crisis, and while no incorporation of pellet production initiatives, bioenergy has been an area of focus. The most recent proclamation, issued in May, emphasizes the urgency in expediting treatment activities, instructing the natural resources agency to double the statewide rate of forest treatments in five years to at least half a million acres per year. Among many other components, it instructs state agencies to reduce regulatory barriers to entry for forest health and fuels reduction projects, and boosts education and outreach to landowners and others interested in these projects.

Grossgart says the port hasn’t done an independent assessment on feedstock logistics, but has gathered intelligence from mill owners, foresters and other stakeholders. “We have had a lot of interest over the past two years, but the low value of the cargo hasn’t justified investment in the plant.”

And although wood pellet exports on the West Coast have been associated with a few hurdles, such as competing, Canadian ports specializing in wood pellet exports, and availability of low-cost residue from wood processing operations, Grossgart

Tansport Âť

The port officially opened in 1933, with the arrival of the S/S Daisy Gray. The ship was carrying 75,000 tons of lumber from the Pacific Northwest.

PHOTO: PORT OF STOCKTON

says biomass energy subsidies being provided by the Japanese government may be a game changer, and allow for a project to pencil out. â&#x20AC;&#x153;Stockton is almost in the geographical center of California, and weâ&#x20AC;&#x2122;re very well situatedâ&#x20AC;&#x201D;geographically and with the road and rail connectionsâ&#x20AC;&#x201D;to be able to handle almost any requirement a mill might have.â&#x20AC;?

Coming off a record year in 2017â&#x20AC;&#x201D; despite a highly competitive marketâ&#x20AC;&#x201D;with overall cargo volume up by over 21 percent, an increase in the number of vessel calls by more than 10 percent, and revenue of $56 million, the port is confident it has much to offer to allow it to continue to expand and diversify its cargo base. â&#x20AC;&#x153;Hopefully, in 10 years, weâ&#x20AC;&#x2122;ll be full here and can expand into the next neighboring island,â&#x20AC;?

Grossgart adds. â&#x20AC;&#x153;We have significant room to grow.â&#x20AC;?

Author: Anna Simet Editor, Pellet Mill Magazine asimet@bbiinternational.com 701-738-4961

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A FERTILE OPPORTUNITY FOR

RENEWABLE HEATING

BY SCOTT NICHOLS

PHOTO: TARM BIOMASS ENERGY

S

ometimes, nice old buildings present fertile opportunities for renewable heating makeovers with wood pellet boilers. A great example is a 30,000-square-foot office and warehouse that was built over time, starting in 1965,

by New Hampshire Gov. Meldrim Thomson for his Equity Publishing business. As Gov. Thomson's business grew from the core 1965 building, each building addition received another heating system. When Tarm Biomass moved into the building almost two decades after the Thomson Family owned it, there were six separate heating systems.

Original Equipment The original, blackened, American Standard oil boiler with its 6-inch stalactite pipe leaks remained in place. Three propane-fired, rooftop units redundantly heated office space that was also heated by the oil boiler. An oil-fired furnace array hung from the ceiling of the 1986 high-cube warehouse. There was also an oil furnaceâ&#x20AC;&#x201D; we'll call it Frankensteinâ&#x20AC;&#x201D;heating another 10,000 square feet. Based on oil stains and

When Tarm Biomass moved into an office building using an aged, inefficient heating system, the owners seized the opportunity, hiring the company to install modern, efficient wood pellet boilers.

PHOTO: TARM BIOMASS ENERGY

soot coatings, Frankenstein appeared to be at least 40 years old.

With Tarm Biomass as a tenant, the new building owners saw an opportunity.

They hired Tarm to update and simplify the heating system. The new renewable heating system would use Froling wood

pellet boilers. With winter fast approaching in 2016, Tarm Biomass began a thermal makeover, starting with breaking the old American Standard cast iron sections apart, and carting the soot and mud-filled beasts to the scrap heap. Tarm then built a new distribution manifold, and installed a Viess-

CONTRIBUTION: The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Pellet Mill Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

26 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

Installation »

The original American Standard oil boiler, left, was replaced by Tarm with a Viessmann propane boiler, which began serving as a backup heat source when two Froling wood pellet boilers, center, were in place and fired up. A 15-ton wood pellet silo was placed outside of the boiler room.

PHOTO: TARM BIOMASS ENERGY

mann propane boiler where the oil boiler had been. While it served as the primary heating source in the winter of 2016-‘17, the propane boiler became a backup heat source for the future.

Where the Frankenstein furnace once lived, two new Froling wood pellet boilers, 350,000 Btu-per-hour each, were added. A 1,250-gallon buffer tank was installed in the adjacent warehouse. The boiler installation space was chosen due to its proximity to an outside wall, allowing pellet delivery truck access and a simple chimney installation.

A 15-ton pellet silo was placed just outside the new boiler room. The Froling wood pellet boilers pneumatically pull fuel through 2-inch hoses from the silo as needed, which makes it unnecessary for building staff to ever handle the fuel.

The Froling wood pellet boilers work automatically in a cascade to heat the buffer tank. Consequently, as the buffer tank drops in temperature, each boiler responds as needed to keep the tank hot. There is a Grundfos Magna circulator that automatically responds to building demand by measuring the difference in supply and return temperature. When there is a call of heat, the Magna pushes heat to the building load

automatically. Through flow modulation, the Grundfos Magna not only saves power, but also helps the buffer tank store thermal energy more effectively. Replacing the Frankenstein furnace with two new air handlers connected to the Froling wood pellet boilers was easy. Now, approximately 20,000 square feet are heated with wood pellets.

Renewable Energy Funding Opportunities Using wood pellets presented several opportunities. First and foremost, the state of New Hampshire, through the Renewable Energy Division of the Public Utilities Commission, provided a generous 40 percent rebate payment of just over $58,000.

The USDA also helped with a Rural Energy for America grant of around $20,000. And until at least 2025, the building owners will be able to sell thermal renewable energy credits (T-RECs). T-RECs are marketable commodities that are worth about $22.50 per megawatt hour. T-RECs are created by New Hampshire law, which requires power generators to a certain amount of energy with renewable sources. If generators cannot produce their own renewable energy, they must purchase renewable energy cred-

its. A certain amount of those credits must be purchased from the thermal class of available credits.

Tarm installed a heat meter, tallying energy produced by the pellet boilers and uploading that data to a website. The output data is verified by a qualified third-party auditor. Though the final quarter of 2017 was a warm period, the building owners generated 20 megawatt-hours of thermal energy, which was worth about $450 after paying a fee to a T-REC aggregator. Based on fuel use predictions, the building owners expect to earn between $2,000 and $3,000 each year selling T-RECs. Each ton of wood pellets generates approximately four T-RECs in efficient pellet boilers.

During the winter of 2017-’18, locally made wood pellet heat offset about 6,000 gallons of propane use. It seems that there is excess wood pellet boiler heating capacity.

With that in mind, the building owners are already exploring extending heat from the wood pellet boiler system to the last remaining 10,000-square-foot, oil-heated space.

Author: Scott Nichols President, Tarm Biomass Energy www.woodboilers.com scott@tarmusa.com

WWW.BIOMASSMAGAZINE.COM/PELLET 27

Figure 1

FORECASTING

INDUSTRIAL WOOD PELLET PRICES

F

utureMetrics has developed a comprehensive model for estimating the cost to produce and ship industrial wood pellets to a foreign port. One of the significant drivers of the cost estimate is the cost of the diesel fuel used in the harvest and transport of forest products and the transport of pellets to the shipping terminal. Using forecasts for petroleum prices and known or expected values for other components of the supply chain for pellets, the model can be used to estimate the future costs to produce and deliver pellets.

Delivered Pellet Historical Prices FutureMetrics has estimated the historical delivered (CIF) price of wood pellets from international trade data. Data on the value and quantity of imported pellets gives insight into the prices that buyers are paying for the fuel. Because most of the international trade of pellets is under long-term contracts, those prices reflect a competitive, long-run, marketclearing value.

BY WILLIAM STRAUSS

The spot price is influenced by shortterm supply and demand imbalances. If the market is in a state of excess supply, prices fall. If the market in a state of excess demand, prices rise. Long-term offtake agreement prices are based on mutually sustainable values for the pellet fuel. Those prices are unaffected by short-term supply and demand imbalances.

FutureMetrics has estimated CIF prices for several common destinations, including ARA and Japan. The estimates for CIF U.K. are in Figure 1. Note that the weighted average considers the market share of the exporting countries. The U.S., Canada and the Balkan states dominate the share of pellets imported into the U.K. The most recent data for June shows that the U.S. has 58.4 percent of the U.K. market, with Canada having 19.6 percent, the Balkan states about 19.8 percent, with the small remainder from Russia.

Since the trade data includes pellets imported at spot prices, lower-volume exporters such as Russia, which has traded almost entirely on spot, will exhibit higher price vola-

tility. The three-month moving average and the trend smooth out most of that volatility. Over the past several years, based in this analysis, the average long-term offtake price delivered to the U.K. has been between $180 and $190 per metric ton (MT).

The Model The goal of the model is to replicate the estimated delivered price of pellets, and then, based on commonly forecast macroeconomic parameters, forecast future prices.

The analysis assumes that that market is not in a condition of excess supply or demand. In the short-run, there may be a supply and demand imbalance that would impact spot prices. However, the intrinsic costs of producing and delivering pellets, including typical profit margins, will set the market prices for long-run supply contracts.

The methodology involves developing independent submodels for each of the main components of pellet costs, which are wood costs delivered to the pellet mill, pellet mill conversion costs (excluding wood costs)

CONTRIBUTION: The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Pellet Mill Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

28 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2018

Markets Âť plus margin, inland transportation from the mill to the port and port storage and loading costs, and shipping.

The wood cost model begins with stumpage cost and then accounts for equipment, labor and trucking for harvest and delivery.

Within the model are inputs for distance traveled on four classes of roads, from in-woods to highway. The use and cost of diesel fuel is a large component of the total cost of delivered wood. If the pellet mill uses only sawmill residuals, the model accounts for the fact that the sawmill has absorbed most of the harvest and roundwood delivery costs.

Conversion costs are the costs to take incoming fiber and converting it into wood pellets. The margin is based on historic values for EBITDA per MT. For inland transportation from the mill to the port, costs per MT-kilometer are calculated based on several inputs. Storage and loading costs are based on typical rates and the amortized cost of the storage and ship loading infrastructure.

To estimate shipping costs, from the Argus Biomass Market Report, FutureMetrics used over 200 weeks of pellet freight rates from five different routes and two vessel sizes, and performed a regression analysis based on oil prices, distances traveled, vessel sizes, transit and loading/unloading time, and a few other parameters. The regression output provides a robust set of coefficients for estimating long-term shipping costs.

FutureMetrics has added an adjustment to the per-MT shipping rates based on the Jan. 1, 2020, implementation of the International Maritime Organization sulfur cap on emissions from shipping. The adjustment is based on distance traveled, and thus the increased cost per MT increases with longer distances.

There are several other inputs including general cost inflation rates.

FutureMetrics has estimated the potential variability of the critical inputs to the model and has developed probability distributions for those inputs. That allows for a series of Monte Carlo simulations. The simulations yield ranges for the price forecasts that are shown in Figure 2, which uses several stylized assumptions. The inputs for each pellet mill will be different and unique.

Figure 2

Figure 3

by the simulation. For example, for quarter four 2018 pellets shipped from the U.S. Southeast to Immingham, U.K., on a 45,000MT vessel, the distribution of possible CIF prices from 10,000 interactions of the simulation is shown in Figure 3.

Transport distances for the pellet feedstock have a strong impact on the delivered cost of wood to a pellet mill that uses roundwood or in-woods chips. The delivered cost of wood is the most influential factor in the total cost of producing pellets. The green bar gives some indication of the ability of the producer to buffer external cost changes with Results of the Analysis a lower or higher operating cash flow margin.

Each quarterâ&#x20AC;&#x2122;s estimated CIF price is The blue bar shows how if the producer can based on a probability distribution produced improve plant efficiency (for example, more

consistent operation and output) then they can lower the price, but maintain their margin.

Unless oil prices do not follow the upward trajectory forecast by the EIA and general cost inflation rates are below the assumption in this example, or producers can improve conversion costs or accept a lower EBITDA per MT, the delivered cost of industrial wood pellets is likely to be above $250 per MT by 2030.

Author: William Strauss President, FutureMetrics Williamstrauss@futuremetrics.com www.futuremetrics.com

WWW.BIOMASSMAGAZINE.COM/PELLET 29

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& CONTACT INFO Contact us today for more information service@bbiinternational.com or 866-746-8385

Environmental and Safety Engineers

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Conversion Technology Inc. is an environmental and safety consulting firm with worldwide experience in the biomass and pellet industries. â&#x20AC;˘ Combustible Dust Hazard Analysis â&#x20AC;˘ Environmental Permitting (Air, Water) â&#x20AC;˘ Process Safety Management â&#x20AC;˘ Regulatory Compliance (EPA, OSHA, NFPA)

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