By Chris Nelder
Posting in Energy
Making freight rail and waterborne transportation infrastructure a national priority could open up a $1 billion export market for American renewables, writes energy columnist Chris Nelder.
It's the biggest renewable energy source you've never heard of, and it's just getting started.
It has a guaranteed market, with Western European demand expected to triple by 2020. Its global market has tripled over the past decade.
What is it?
That's right, wood pellets. Compressed sawdust.
The demand is primarily coming from Europe, where carbon-reduction targets are driving power utilities -- particularly coal-fired power plants -- to mix more wood pellets into their fuel supply. Under current targets, many European countries will need to generate 35 percent or more of their electrical power from renewable sources by 2020. And biomass, particularly wood pellets from the U.S., is critically needed to meet those targets.
But this massive export opportunity for the U.S. is being held up for a lack of infrastructure, policy incentives, and financing.
At Infocast's Biomass Trade and Transport Summit in Charlotte, North Carolina last week, I got an earful about the huge shortfall developing between supply and demand for this crucial, if unsexy, source of renewable energy.
Sean Ebnet is the director of biomass origination for the UK utility Drax Power, whose 4,000-megawatt coal-fired power plant generates about 7 percent of the UK's electricity. He said that of the country's 85 gigawatts (that's 85,000 megawatts) of power generation capacity, one-third is scheduled to be shut down by 2016, including 24 gigawatts of coal capacity (because it can't meet emissions standards) and 5 gigawatts of nuclear capacity (because it's reached the end of its life).
Drax's state-of-the-art plant runs at nearly 40 percent efficiency, and currently gets about 12.5 percent of its fuel -- 1.2 million tonnes (Mt) per year -- from wood pellets. But Ebnet says they're just getting started. With new capital investment, the plant will get 20 percent of its fuel from pellets later this year, and ultimately rely on biomass for the majority of its fuel.
According to Jonathan Rager of Georgia-based Poyry Management Consulting, a 50 Mt gap will open between global supply and demand for pellets by 2020. Western European demand will triple, from 11 Mt per year in 2010 to 35 Mt per year by 2020. For perspective, North American wood pellet production capacity was just 4.2 Mt in 2008 according to the U.S. Forest Service. North American pellet exports were just over 2 Mt in 2011, of which over half came from the South.
The demand is certainly there. What's missing is the supply.
Stranded supply in North America
North America has plenty of supply and could meet that demand, if the pellets could get to market at an acceptable price. According to Rager, there was 106 Mt of unmobilized wood surplus worldwide in 2010, and North America is the best source of new supply, thanks to its healthy and growing forests, good infrastructure, efficient domestic logistics and supply chains, attractive pricing, access to ports & distribution, liquid and open markets, and credible sustainability compliance, which is essential to qualify for use as renewable fuel in Europe.
A large part of that supply could come from the Southeast, which sports 63 million hectares of timberland and currently holds the "pole position" as a global supplier of wood fibers, according to Rager. The U.S. as a whole has about 204 million hectares of timberland (forests that are available for periodic harvesting).
Unfortunately, as Dean McCraw of Georgia-based McCraw Energy noted ruefully, much of it has been grown for the sawtimber market: dimensional lumber for building materials. When those trees were planted in the 1980s, their landowners didn't anticipate that the construction industry would crash in 2008. Now it has no place to go, and most of its owners are waiting for the market to recover, or ditching it into the pulp and paper market. Accordingly, McCraw believes we're headed for a pine pulpwood shortage. New plantings have declined by 50 percent or more in some areas, and aging mom-and-pop landowners aren't regenerating their land. They're just walking away from it, or letting it be sold on estate settlements.
The cost of feedstock in the field is low across the board, and for low-grade residue feedstocks like leaves, small limbs and needles, it can even be negative.
While bad news for the landowners (including many Timberland Investment Management Organizations and Real Estate Investment Trusts, which own about 7 percent of US timberland), this is all good news for feedstock supply.
North America also boasts a substantial capacity for pellet manufacturing, which is expected to grow to 10 Mt in 2017, according to Seth Walker, an economist with global biomass information provider RISI.
However, it's still woefully undersized to meet European demand. Filling the gap will require billions of dollars of investment in new pellet mills, and massive new investment in transportation and logistics infrastructure to get the pellets to market.
The missing link: transportation and logistics
Transportation and loading can be as much as 40 percent of the total delivered pellet cost, according to Brent Mahana of Cooper/Consolidated, the largest independent barge operator in the U.S. Of that cost, roughly 30 percent is fuel. Shipping by barge is by far the cheapest method, followed by rail. But much of the North American supply is too far from an inland waterway or rail loading yard to make it economical. With diesel at $4 a gallon, just 50 miles' worth of trucking costs to get feedstock to mills and finished pellets to oceanic ports can make or break an entire supply chain.
While some areas of the U.S. have excess capacity in freight rail and rail-to-port infrastructure, like Maine (which sports the lowest shipping cost to Europe at $28 a ton), much of it is either too far from the feedstock supply, or lacks sufficient pellet mill capacity. A great deal of the feedstock is stranded for lack of transportation and logistics capacity.
Geoffrey Clark, executive director of the Rail Authority of East Mississippi, and Sean Dunlap, director of Mississippi's Wayne County Economic Development district, presented a microcosmic view of the problem. Mississippi has two counties that are 50 to 70 percent covered in forest, but they can't get the timber out economically without rail. They are trying to get 56 miles of rail built that would restore rail service from Chicago to the Gulf of Mexico and open up eastern Mississippi and western Alabama to pellet transport.
Without more direct rail access, feedstock suppliers in the region have to take very circuitous routes running far to the east or west before they can get south to the Gulf, making the economics unworkable. "That 56 miles might as well be 5000 miles to them," said Dunlap, calling it "the missing link in the economic spine of east Mississippi." An estimated 15,000 to 30,000 rail cars a year could transit the line when finished, creating thousands of permanent jobs all along an economically depressed corridor. The total cost of the project might run a paltry $150 to 200 million. But getting the project approved and funded has been slow due to a lack of funding, and opposition by locals who fear change.
The European wood pellet market alone will be roughly $7 billion a year by 2020. The U.S. could supply a big share of that – perhaps as much as $1 billion a year worth of exports. Globally, the opportunity is even greater, with China, Japan, and other countries planning to increase their demand for pellets.
But we're not going to capture that market share without overcoming the chicken-and-egg problem of shipping infrastructure and logistics. Before they'll invest billions of dollars in new pellet mill capacity, backers want to see signed offtake agreements with utility buyers and be assured that they'll have economical transport to European markets. The utilities won't sign offtake agreements without knowing what the cost and delivery volumes will be. And nobody is going to spend billions on port and rail upgrades without being sure of the demand for those facilities.
This is precisely the sort of project where state and federal leadership could make all the difference, delivering enormous benefits in local jobs and national exports. Unfortunately, our governmental bodies remain in legislative capture by the automobile and oil industries, and haven't shown much leadership on freight rail and rail-to-port infrastructure that isn't "shovel-ready." With tragic short-sightedness, the vast majority of federal transportation infrastructure investment still goes to politically expedient road projects.
Building rail and waterborne transport infrastructure is a no-brainer for America, and it's high time we made it a national priority. As I have detailed previously, we should be spending on the order of $1 trillion a year on a national infrastructure program, with emphasis on port and rail capacity. Not only could it restore full employment in the short term, but by the time we get it finished decades from now, it will prove to be a critical lifeline safeguarding our economic viability in an age of declining fossil fuels.
Photo at top: Wood pellets being loaded onto a barge. Source: Vigan
Jul 24, 2012
Agreed - let's build out freight rail instead of high speed rail. Wood pellets have a long shelf life. (Arguably an infinite shelf life). So does coal. Let's build out the infrastructure to move these things at a steady pace. The humans can keep moving on cars and planes, like they always have. What Nelder glosses over here is the overall high quality of freight rail in the US. What the US lacks in passenger rail it more than makes up with freight rail. We have the best freight rail system in the world, bar none. (Ask Warren Buffet if you don't agree - he didn't make a massive investment in US freight rail because he likes playing with trains). But it's not perfect, and some parts of the system have degraded. Let's improve it. Where will we find the money? The money budgeted for the HSR boondoogle is a good place to start. I think it's sort of funny the Euros think the American's sawdust is so wonderfully green. I can introduce you to more than a few American environmentalists who fought tooth and nail to stop a sawdust burning plant from being erected in my home town (despite the inclusion of top-of-the-line emission control devices). But hey, the Euros are a bit daffy, in more ways than one. If they want to get a warm fuzzy burning the detritus from American clearcut, let's have at it.
Actually, forests in Europe have been systematically depleted since before Roman times. One of the reasons the Romans invaded northern Europe was because Italy had been deforested. Both Spain and England suffered deforestation when building their great wooden navies. When North America was discovered with its seemingly endless forests, it ended a major crisis in England. The other factor which stopped the deforestation of Europe was the development of coal mining techniques. Even today, places such as Madagascar suffer from massive deforestation because the wood is needed as fuel. See http://www.eh-resources.org/wood.html . Just because a wood fire does not produce visible smoke does not mean it isn't producing harmful particulate matter. The EPA is most concerned with particulate matter under 2.5 micrometers, and this isn't visible except as haze when massive amounts are released. See http://www.epa.gov/pm/basic.html .
I was watching the ASPO 2012 presentations in Vienna and a couple of them centered on wood pellets and modern wood burning furnaces. The new furnaces are so efficient in burning wood & pellets that the amount of residue is minimal, leaving only fine white ash with no dense particulates worth for burning (ie energy extraction). They burn so completely the material that barely any smoke is exhausted (at least the ones made in Austria so said the presenter). Some comments were made that the use of pellet furnaces will only increase and this is sustainable for forests can be managed for sustainability same as European nations managed their forests for generations as it was their source of material for their naval fleets.
It would seem a wise investment in future economic development to support the building of this 56 mile section of track, irrespective of its potential use for just shipping pellets. Why is this not on the agenda for our national transportation system? Where is the leadership in such projects that would represent a wise use of government resources to rekindle our economic recovery? We need to spend more on infrastructure projects and less on social programs that reward dependence.
It's ironic this article talks about coal as a great source of pollution. The Wall Street Journal just published an article about the huge pollution problems with biomass plants here in the US. One plant was so bad that local residents had to flee the dark smoke it created -- something that never happens today with coal plants. The Journal found that 85 of 107 biomass plants had pollution violations of some kind in the last five years, although some of these were burning agricultural waste and other non-wood products. While these violations were happening (something the EPA wouldn't allow in coal burning plants), many of these biomass plants were still getting federal subsidies. Biomass has problems with carbon monoxide and particulates that are greater than modern coal plants. While it's a renewable resource, it's hardly a clean one. If the technology exists to clean up biomass, it certainly exists to clean up coal. See http://online.wsj.com/article_email/SB10001424052702303740704577524822063133842-lMyQjAxMTAyMDIwNTEyNDUyWj.html?mod=wsj_valetleft_email .
Any discussion of HSR needs to include cargo in the picture. Regional rail service feeding into a handful of HSR trains running on dedicated tracks could move people and cargo quickly and efficiently across the nation. They just need a comprehensive plan built around dedicated express rails, both national and regional rails. Rails that we once had, but gave up in the 1960s and 1970s. The real fight that is blocking every idea for rail is to replace them. NIMBY is thy foe. The little known fact behind Eisenhowers push for a national highway system is that he never intended it to replace rail. It was intended to augment rail. His war time experiences with the German autobahn showed him the value of a solid highway infrastructure to go where rail could not or did not go. Among the first equipment brought into the Normandy beaches in the weeks after D-Day were trains to replace the ones the allies had been destroying. The Red Ball Express is better known, but the trains that ultimately replaced it saw little glory. When the Federal Department of Transportation was formed in 1966 its mission was to - Serve the United States by ensuring a fast, safe, efficient, accessible, and convenient transportation system that meets our vital national interests and enhances the quality of life of the American people, today and into the future.- Since the beginning they took that as a mandate for building highways. Since the beginning the construction industry, trucking industry, truck manufacturing industry and the associated union lobbyists all worked hard to make sure the focus was kept on building highways.
It may be true Europe has less forest than when the Romans ruled the land, but it does have more forests now than even 30 years ago. Even with the massive bug infestation die off of pine trees out west, the US still has far more acres of forests than it did 70 years ago. I have pictures taken from my grandparents house in Massachusetts that show not a single tree in sight for miles in every direction in the 1920s. Even the White Mountains of NH were largely barren of trees. There are forests now for miles in all directions around their house and the White Mountains are heavily wooded. Alternative energy is needed more in areas like Magascar for the fuel reasons you mentioned than in the US. This is where the affordable requirement needs to be met.
The massive pine tree die off caused by pests out west is going to fuel the wood pellet industry for years as the infested dead wood is harvested to make way for replanting. The wood is no good for lumber or other normal uses, but the pellet making process kills the bugs and turns waste wood into a useful product.
Unfortunately the general public associates "dirty" with the word Coal... Never mind the fact that Bio-Anything is in full fashion with the media and politicians alike. All of this Bio Crap looks great on paper, at first glance... But when you follow the product through its manufacturing and supply chain you find that it is no longer the pretty picture proposed in campaign slogans, environmentalist posters and so called "Green" initiatives. It's like the Electric car... It gets the Ooh's and Aah's and everyone thinks it is so great for the planet, but they don't look a little deeper and ask the obvious of "where do you think all of this electricity comes from"???
For things like wood, coal, iron, etc. HSR is a fairly inefficient solution. Good old-fashioned low speed rail does the job just fine. For items that don't expire (have long shelf life) the penalty of slower transit is simply the "time value of money". In a low interest rate world, this value is very low. You can move your long shelf life goods as slowly (and cheaply) as you want, so long as you just keep careful track of your "rolling inventory". HSR would be a great solution for items like produce. Hence, the LA to Las Vegas run could work, as there is a fair bit of "irrigated desert" that would be reasonably close to this route (particularly if it's routed with this use in mind).
The problem with that wood in the Rockies is going to be the cost of transporting it to somewhere where it's useful.
Standard rail cargo has a strong place in our nations infrastructure. Some items are best shipped low and slow. To clarify my earlier point, HSR would be a perfect alternative to shipping more time sensative items like food or packages via truck or plane. There are also some inherit problems in the long haul trucking industry that are catching up with it. There are approximately 1.6 million tractor trailers in operation in the US on any given day. Most of those are on deliveries of over 200 miles. As of 2005 the long haul industry had a persistent shortage of 20,000 drivers. Even with the bad economy that shortage is expected to hit over 110,000 by 2014. The long growing trend of just in time inventory management has taken cargo from the railroads and moved it to trucking because timely deliveries are needed. From a man power stand point trains make sense for some items. HSR would make sense for some items. http://en.wikipedia.org/wiki/Trucking_industry_in_the_United_States#Top_10_US_trucking_firms Rail needs to be part of an integrated transportation system. We lost that from 1960 to roughly 2005. Rail cargo started to make a comeback around then. HSR cargo and standard rail cargo both have their place. Just as HSR, regional rapid rail, light rail and subways all have their place for moving people.
There are people trying to build pellet making plants close to the source, but venture capital is hard to come by because it is not a flashy industry. Lets hope an improving market for better pellet heating options makes it worth it for someone to invest. Right now I can lock in pellet prices for this winter of around $235 a ton. That is down from about $375 a ton at the height of the Iraq rebuilding effort when the US government was buying massive amounts of plywood.
I don't think the author was using the "56 miles of track" as the sole reason all of this market is at a standstill... It was just a small but accurate example of the overall problem with transportation logistics. As for simply solving these issues with trucking, it was painfully pointed out just how much that option adds to the price to market... Of the various transportations modes, trucking is just ahead of airplanes for transporting product as far as efficiency, and quite a big distance behind rail and water.
If the issue is just 60 miles of track, the obvious answer is just to truck that distance. This is something our transportation system good at --- using trucks to fill gaps in the infrastructure until the market proves itself. Witness trucks moving oil / NGLs out of the Bakken while the Keystone links are argued over ad neasuem. While I'm sure there are some good points in Nelder's article here, the notion that there is a 7 billion dollar market waiting on 60 miles of train track just doesn't pass the smell test. If there was a 1 billion dollar market waiting on 100 miles of train track, the trucks would be plying that route non-stop, and the rail plans would be moving forward full steam. Still, this is a good article by Nelder standards. I wouldn't be surprised to see pellet exports grow significantly over the next 5 years ... but I would be surprised if such growth was blocked by something as surmountable as a short train hop. Bear in mind that "56 miles might as well be 5000 miles" quote is likely from a government official or industry person plying for government dollars. So the exagerration isn't originating with Nelder, but a true energy expert would look at the much more remote Bakken and realize that a truly large energy producer can overcome much more than 56 miles of isloation.