ENERGY FROM FORESTS

Bioenergy and the Global Forest Products Industries

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Background to the report

High and rising oil prices, geopolitical concerns about the security of energy supplies and mounting pressure to address the twin problems of green-house gas (GHG) emissions and climate change are redrawing the boundaries of the global energy economy.

It is widely accepted that the acceleration in global energy demand is unsustainable unless governments and industries improve energy productivity, reduce their dependence on fossil fuels and diversify their sources of energy supply. Some of the most important measures being undertaken include:

• Improving energy efficiency in the transport, industrial and building sectors.
• ‘Decarbonising’ heat and electrical power-generation mainly by shifting towards renewable sources of energy, including biomass.
• Increasing the use of bio-fuels in road transport, initially with first generation bio-ethanol and bio-diesel and ultimately with second and third generation bio-fuels from non-food cellulosic biomass including forest residues and dedicated wood-energy resources.

As a result, biomass energy is now regarded as one of the key building blocks of a sustainable global energy strategy. Technologies for generating bio energy, fuels and materials are advancing rapidly, benefiting from growing investment flows from both the public and private sector.

The forests of the world are one of the most significant sources of feedstock for bio-energy production. Already, more than half of the annual global wood harvest is used for energy production; some 2.5 billion people rely principally on wood biomass for their energy supply. In addition, the forest products industry is already the world’s largest producer of bio energy. In some instances, it generates in excess of 50% of its own heat and power requirements and also supplies surplus energy into the grid. Despite this, both existing forests as well as the forest products industry have significant scope for greater energy productivity throughout the supply chain. This may be encouraged if pulp mills are included in public eco-electricity subsidies for energy generated from burning liquor

The competitive dynamics of the industry

The importance of biomass energy and the need for green-house gas emission reductions will have a significant impact on the competitive landscape of the forest products industry.

Until now, wood based feedstock has been used primarily for the generation of heat and power. This demand has been accelerating in recent times, especially in Kyoto protocol signatory countries where there are strong incentives from governments to increase the use of environmentally friendly sources of energy. More recently however, the emphasis has broadened to include the production of transportation fuels from wood based feedstock. Today, energy planners believe that during the next decade the production of bio-fuels from the existing wood harvest and bespoke plantation fuel crops being developed will overtake the generation of wood-based bio heat and power.

The growing demand for energy feedstock will enable the better utilisation of previously unused portions of the existing yield from the global forests such as small round wood and harvesting and processing residues. This will have a major impact on the purpose for which forests are grown and the methods by which forests are managed as well as the operations of the existing wood fibre supply chain e.g.:
It offers forest owners the opportunity to monetise some of the many different values that their assets represent, including carbon sequestration, soil and water conservation, bio-diversity and bio-energy alongside the traditional lumber and fibre values.

For some forest-based companies there are significant opportunities to grow and diversify income streams. For others, such as the Reconstructed Panel Industry (Particle board and MDF), growing demand for wood for energy signals an intensification of competition for raw material.
This development will also have implications for trade and trade flows. An early example is the rapidly expanding international trade in energy wood, chips and pellets with the associated logistical challenges and opportunities.

The need for this study

There is still much uncertainty about the challenges and opportunities that face the forest products industry. There is an urgent need for a study that addresses these questions and provides a landscape for companies to develop strategies which will optimise their opportunities.

• Woodpulp producers, particularly in the northern hemisphere, face an uncertain future. Major investments in renewing or repairing existing equipment can seldom be justified unless additional revenue streams can be generated. For pulp and paper producers there may be opportunities to convert existing pulp mills into integrated bio-refineries or to build stand-alone bio-refineries using existing access to wood baskets and fibre flows. Companies in the northern hemisphere are often ideally located nearest to the areas of greatest energy demand. Could pulp eventually become a by-product of a bio-refinery and under what circumstances? If so, what are the consequences for the pulp and paper industries?
• Reconstructed Panel producers in some locations face growing competition for raw materials. What are the risks and how could they respond?
• Forest owners and saw millers are in a prime position to capitalise on the growing demand for energy feedstock. What are their options and how do they position themselves to best participate in the opportunities presented by the growing demand for wood based energy feedstock?
• Players involved in providing supply chain logistics for the forestry and forest products industry need to assess how the growing demand for wood energy feedstock will impact on existing operations, work practices and technologies used as well as what additional capacity and infrastructure may be required.
• Intermediaries need to understand the extent of the opportunity for them to contribute to developing efficient feedstock markets, reducing the feedstock supply risk associated with new bio-energy investments.
• For the Investment Community, the emerging opportunity is of interest as it will continue to attract rising levels of investment from private as well as public capital markets in both North America and Europe. Investors are particularly attracted by the opportunities presented by 2nd and 3rd generation bio-fuels and bio-materials.
• Newcomers from the oil, chemical, building materials and energy industries who wish to exploit the biomass potential are also increasingly active. These companies would be interested in understanding the feedstock supply potential as well options for securing supply. In some instances this interest has already resulted in the formation of new joint ventures between previously unrelated companies from ostensibly different industries e.g. major pulp and paper companies such as Norske Skog, StoraEnso, UPM-Kymmene and Weyerhaeuser have established partnerships with multi-national oil and chemical companies to explore opportunities in bio-energy.

The aim and scope of the study

The aim of the study is to equip decision makers with an understanding of the current landscape and the factors which are shaping the business prospects for bioenergy from forest based resources. It will provide them with the analysis they need to develop a strategic response to the challenges and opportunities that they face.

The time horizon will be approximately five years and the geographical focus will be primarily Europe, North America and Japan since it is these regions that will have the greatest impact on the demand for bioenergy / biomaterials and therefore on the feedstock supply chain.

The study will consider the following topics:

• The factors driving the bio-energy revolution. Oil price scenarios; current and future global energy demand, particularly in Asia. Energy security. Climate change; Kyoto targets; emission credits and trading; the regulatory framework; the availability and influence of state aid/subsidies which impact on the competition between food, fuel and fibre
• The demand for bio-energy and bio-fuels. Current technologies are focussed on combustion of woody biomass and pellets for industrial and domestic boilers and, in some cases, for combined heat & power (CHP). The study will describe current market dynamics-supply, demand and costs; it will develop future supply and demand scenarios taking into account the economics of supply and the challenges and opportunities relating to increased production of wood based heat and power. The projections will take into account the factors driving bio fuel demand e.g. switching costs, logistics, substitution of alternative fuels, oil/petroleum price thresholds, automotive design constraints as well as the consequences of regional variations in the fuel markets: for example, bio-diesel in Europe and bio-ethanol in the USA.
• An overview of the emerging technologies involved. What are the advantages and disadvantages of the various bio-energy technologies involving wood? The study will report on: Technological progress in thermo-chemical conversion of wood pellets / biomass Gasification for electrical power/CHP and clean synthesis gas for liquid fuel. The economics of bio-refineries and black liquor gasification and the stage of development of related technologies The status of the various projects already underway or planned.
• The availability of wood energy feedstock in major consuming markets. Predictable, sustainable supplies, with little feedstock price volatility are desirable characteristics for the production of bio-energy and biomaterials from wood. How likely is this? Can the existing wood supply chain meet the needs of the energy as well as traditional markets and what changes are required? Already, in certain areas, the incentives directed to bio-energy development are having an impact on supplies of low value fibre previously consumed by particle board, MDF and OSB producers. What are the present and future regional variations in energy wood supply and cost? What improvements are taking place in forest management systems and logistics, in plantation science and in the deployment of specialised energy wood crops and the consequences for the forest industry? Specialised energy wood crops aimed at maximising the energy yield per hectare are being developed. When will these have an impact and what are the consequences for the forest industry? Can existing supply chains handle the supply of energy wood cost-effectively? The cost of harvesting and extracting energy wood from existing sources will be more expensive. New technologies and work practices are being developed with the aim of reducing the supply cost of energy wood. How effective will these be? The importance of certifiable sustainable sources of feedstock and the latest thinking in this regard. What will be the effects of competition from other bio-energy feedstock such as corn, sugar cane and palm oil to miscanthus, switchgrass, jatropha and algae?

Availability and cost

The study will be published in March 2008. The price of the study will be £4800 (or Euro 7000).

The price includes two copies of the report as well as a presentation meeting with the authors in London

For more information, download a comprehensive brochure or contact
John Bingham
Email: john.bingham@hawkinswright.com
Tel: +44 20 8747 5840

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