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Reinventing the Mill

The weak U.S. economy, high-priced inputs and low-priced imports have forced many U.S. pulp and paper mills to downsize or close. At one time, transforming these mills into biorefineries looked to be a promising approach. Is the biorefinery still a viable concept that can save aging pulp and paper mills?
By Anna Austin
2008 was not a good year for pulp and paper mills. The news has been peppered with announcements of plant downsizing and closures in a number of communities that rely on the plants for their economic well-being. One of the most devastating closures occurred in the small town of Kimberly, Wis. NewPage Corp. announced in May that it would be forced to close its paper mill at the end of August, leaving 475 workers with no jobs. Just months before that, 125 people were released from the facility after one of its machines was shut down. The closure has left Kimberly's 6,300 residents wondering what will become of the community, where the mill had served as its heart since 1889.

NewPage issued a statement attributing the closure to several factors. "Our decision to close the mill is the result of a weak economy, the continued effects of low-priced imported products and sky-rocketing costs," said NewPage chairman and chief executive officer Mark Suwyn. "The coated paper market is being hit with a slowdown in demand as the uncertain economy is reflected in a reduction in print advertising. At the same time, we are experiencing higher input costs for raw materials and transportation driven by oil and natural gas prices. To balance the somewhat reduced demand in a manner that helps us reduce costs, we are closing our mill in Kimberly, Wis."

In June, Sappi Fine Paper North America in Boston, Mass., announced that it would shut down a paper machine and suspend operations at its pulp mill in Muskegon, Mich., affecting 365 workers.

The situation at the NewPage and Sappi Fine Paper isn't restricted to U.S.-based paper mills. In mid-September, UPM-Kymmene Oyj, Europe's second-largest papermaker, announced it would close a pulp and paper mill in Finland, resulting in the loss of about 1,600 jobs in the next two years. "Demand growth for paper in traditional markets has slowed down," said a statement released by the company in September. "Overcapacity still exists in Europe and slowing economic growth imposes further challenges. Prices of wood, energy and fuels have increased significantly in the last two years."

In Ontario, Canada, Thunder Bay Fine Papers announced it is in danger of closing unless $10 million in funds can be raised by early October. The closing would leave 320 people out of work.

These are just some of the closings announced at the end of 2008, begging the question: What can the struggling pulp and paper mills do to ensure survival?
The idea of transforming the mills into biorefineries-factories where a variety of alternative fuels and chemicals can be produced-has been talked about for some time. The problem is that many pulp and paper mills are nearly a century old and simply can't compete with companies that are equipped with more modern, cost-efficient machinery.
Furthermore, developing a full-scale biorefinery could cost anywhere from $50 million to $200 million.

Despite the obvious hurdles, some companies are beginning to venture down the biorefinery path by taking small steps, beginning with cutting energy costs. "In the near term, mills seem to be taking the intermediate step of putting in biomass boilers and gasification systems to take the heat off of energy costs," says Kris Plamann, director of business development for Kaukauna, Wis.-based Baisch Engineering Inc., which serves the pulp and paper, biofuels and other industries. "If the pulp and paper industry is to survive in this country-and it will-it'll just look a lot different. They have to become innovative biorefineries, no question. Really, it comes down to two questions for the mills in regard to how they are going to respond to the rising cost of energy. What can they produce in addition to paper and how can they come up with, or who can they partner with, to raise the available capital to create a biomass-fired energy plant or biorefinery?"

Feedstock for Thought
Rising energy costs are like a double-edged sword for pulp and paper mills, as they have increased the global demand for wood and pushed prices higher. "The hot new market for wood fiber is that of biomass energy; demand in Europe and North America is expected to soar over the next 10 years," says Håkan Ekström. "With the supply of wood fiber relatively inelastic, at least in the short term, this sudden new demand would normally be expected to push wood prices to unprecedented new heights."

Ekström is principal of Wood Resources International LLC, a consulting firm providing forest market analysis and wood price reporting for the forest industry worldwide. For the past 22 years he has worked in various capacities related to wood products utilization, international forest products marketing and global wood supply. He is also the editor of the Wood Resource Quarterly and the North American Wood Fiber Review.

Wood costs typically account for about 50 percent of the production costs for a pulp mill, which often determines a region or a company's competitiveness, Ekström says. Wood fiber prices have been rising steadily for the past six years, reaching record levels in the second quarter of 2008. "Expanding demand for renewable energy may potentially drive wood fiber prices even higher in many countries in the near future," he says. "Since 2002, global average prices for pulpwood have risen 67 percent for softwood and 64 percent for hardwood, in U.S. dollar terms."

Ekström says to date, most pulpwood has been consumed by the pulp and paper sector, with smaller amounts used to produce wood-based panels

The high price of wood is exacerbated for those pulp and paper mills looking to reinvent themselves if they don't have access to a reliable source of wood. "There are already increasing challenges with getting an economical biomass supply," Plamann says. "Some have it available, and some don't. Depending on the size of the equipment they are running, some will need more biomass than they have available and have to procure it in an increasingly competitive market. The capital may not be balanced by the amount of product they can produce if they have to purchase feedstock or waste materials to run the biorefineries."

Pulp and paper mills don't have to go it alone when it comes to biomass logistics though. Third-party financing companies, which fund projects outside of the traditional paper-related projects, and biomass supply and distribution companies, are working to improve the logistics and availability of feedstock sources, Plamann says. "The timber and transportation industries are becoming active in defining a path forward, even state and federal funding through grant support," she says.

Plamann tells Biomass Magazine that Baisch Engineering may be working with a major paper company on a pre-feasibility study for a biomass gasifier. The company doesn't have the money to fund the project itself, and plans to work with a third-party energy supply company that will sell them back the energy. "There are a couple of considerations for this project," Plamann says. "They know what the cost of the fuel is today, but because of the increasing demand for logging residuals and other waste products to fuel the boilers and gasification systems, they can't easily predict where the price will go in the future. Therefore, the company cannot be sure their return on investment will be accurate-as the waste product market is changing and evolving."

Although it might seem like the obstacles are insurmountable, for some pulp and paper mills the benefits of reducing energy costs and evolving into a biorefinery outweigh the capital costs. "Mills have had long-term contracts-10 years-for what would today be considered very reasonable rates, such as 5 cents per kilowatt hour or $50 per megawatt hour for electricity," Plamann says. "The cost of electricity purchased from the grid and No. 6 fuel oil have gone up 20-and-a-half times in the past two years. Now, mills are experiencing reconstructed rates upwards of 12 cents in place of that original long-term contact of 5 cents." Plamann says one of the engineering firm's customers burns 9 million gallons of No. 6 fuel oil per year. "There's a lot of potential savings if you balance the capital costs of a biomass boiler and replace that oil usage-and maybe even generate enough steam to sell electricity back to the grid," Plamann says. "This company used to purchase its fuel from a neighboring paper mill, but now that mill is putting in a biomass system, which will require possibly as much as 2,500 tons of fuel products a day for a 483,000-pound-per-hour biomass-to-steam system." Although this isn't considered a full-fledged biorefinery, it is the first step in reducing energy costs.

Funding the Future
Plamann says one of the biggest challenges mills face when putting together the plans for developing a biorefinery, or adding energy-saving biomass-fired equipment, is making third-party initial contractual arrangements. "Getting those in place takes a lot of time and work, sorting out all the energy supply agreements," she says. The beauty of working with a third party for funding is that the pulp and paper company doesn't have to come up with as much up-front capital. The third party may also be able to work with other nearby energy consumers willing to purchase biomass-created energy from the mill, securing a quicker return on investment. "There are also different resources and infrastructures each facility may bring to the table that can impact either the up-front capital required, or help feed the boilers down the road-there's the land, the utility, and the biomass or waste available."

The mill may be able to lease the land from the third party and collocate the energy facility between the mill and other energy consumers. Plamann points out that there are several benefits to being in close proximity to mills-one is that the utilities are already there, the wastewater and sewage treatment facility is there, make-up water is available, and there are a lot of synergies to the capital investment needed and what the mill already has established that they can share.

Making Progress
In April 2008, the U.S. DOE selected three small-scale pulp and paper mill biorefinery projects and awarded each of them $30 million. The projects, which are expected to be operational before 2011, will use a wide variety of feedstocks and test various conversion technologies to provide the data necessary to commercialize other full-scale biorefinery technologies.

One of the selected sites is RSE Pulp & Chemical in Old Town, Maine. The project will be installed at an existing pulp mill and will produce cellulosic ethanol from wood extract.

The DOE awarded funds to Flambeau River Biofuels to construct a biorefinery that will employ two technologies to produce clean renewable energy and biofuels. It will gasify biomass resources, such as forest residuals and agricultural wastes, into a synthesis gas, which will then be catalyzed using the Fischer-Tropsch process to generate 6 MMgy per year of renewable liquid fuels such as biodiesel and waxes.

At the August 2008 TAPPI International Bioenergy and Bioproducts Conference in Portland, Ore., Doug Freeman, project manager for NewPage Corp., another $30 million recipient, gave an initial analysis of a feasibility study being conducted regarding the possibility of a biofuels project at its mill in Wisconsin Rapids. The project would produce 5.5 MMgy of renewable diesel and renewable gasoline from 175,000 tons of wood residue obtained from within a 70-mile radius.

Although these projects are still a few years away from completion, they are the forerunners of what could be a revolution for pulp and paper mills. "Full-scale active biorefineries at mills across the country may be years off, but the industry as a whole needs to embrace the concepts and work toward conversion just as the corn ethanol industry is doing,"
Plamann says. "It's not just a question of making paper anymore, it is completely revamping a very old and wise industry into a thriving, new multidimensional one that can successfully live on for another 100 years."

Anna Austin is a Biomass Magazine staff writer. Reach her at aaustin@bbiinternational.com or (701) 738-4968.
 

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