Positioned for Pellets

With port and rail expansions under development, Maine is on the cusp of entering the wood pellet export market.
By Lisa Gibson | January 05, 2012

The Port of Eastport in eastern Maine will be prepared this month to export wood chips to Europe, extending that capacity to wood pellets soon thereafter. It’s a significant milestone, as the wood pellet export industry has been delayed in the Northeast U.S., despite the fact that it has immense freight advantages to Europe over many other global pellet production hot spots, even the Southeast U.S.
The Northeast has only three deepwater ports, all in Maine and none with the infrastructure to handle wood pellets. Until now. All three of those ports are gearing up in some way to descend on the pellet export market, cashing in on numerous advantages, not the least of which being proximity to Europe’s growing demand.

“Back in ’08-’09, we saw on the horizon this was going to be a market that was going to explode and we looked up and down the coast of the Eastern United States and said, ‘There’s an opportunity here,’” says Chris Gardner, executive director of the Port of Eastport.

Construction on the port’s expansion was underway throughout all of 2011, with the installation of a bulk yard and 800-foot by-directional conveyor system capable of handling both import and export commodities. Currently, the system is designed for chips, but will most definitely be tailored to handle pellets, too, with the installation of covered storage. “We’ve made the design implementations necessary that we have stage two of the rocket, so to speak, and that’s for the pellet industry,” Gardner says. “We have set the system up so that we know when and where we need to pull the trigger. We can go to the next stage of our investment and put in the automated pellet storage.”

The Port of Eastport is the deepest natural seaport in the continental U.S., with a 65-foot berth during the lowest running tide. Its approach channels are all well over 100 feet deep, with no dredging. It’s also the easternmost port in the U.S., making it a prime candidate for European exports. “We have not done a good enough job of telling people who we are,” Gardner says.  

In 2009, the pulp mill that represented the backbone of the Port of Eastport’s business was shut down, leaving a gaping hole in operations. “It really exposed the fact that the Port of Eastport was overleveraged, some would argue, in one singular customer, which is never a good business model,” Gardner says. The Port Authority Board realized it needed to make a choice: settle on the inevitable and die or invest in other assets and find a way forward, he says.

“We saw another opportunity. European interests would be screaming for fiber,” Gardner says. The East Coast of the U.S. lacked port automation, and Maine is the last place where forest touches the ocean, he explains. “It all seemed to add up and point to the same thing.”

And managers at the Port of Eastport weren’t the only ones to notice. “There are plans that people have been discussing quietly,” says Tony Wood, vice president of F.E. Wood & Sons, which has proposed a 312,000-metric-ton wood pellet plant that would export to Europe through another of Maine’s deepwater ports, the Port of Portland. “I wouldn’t be surprised if everything all happens at once in this area.”

Port Planning

It certainly seems as though everything is all happening at once, as the third Maine deepwater port, the Port of Searsport, also has invested in an expansion. George Soffron, CEO of Maine-based Corinth Wood Pellets LLC, knows that because Corinth plans to begin exporting this year through the mid-Maine port.

“Maine has great potential for export of pellets to Europe,” he says. “All three of these ports are underutilized for dry bulk product.”

Bulk commodities were common once out of the Northeast, Wood says, but most ports have transitioned more toward break bulk and liquid fuels. “So this is a positive direction, to go back toward bulk transportation, even though it’s a little different, it’s certainly something the ports have always been capable of doing.”

F.E. Wood & Sons, a fifth-generation sawmilling company that has no sawmills in operation currently, has built relationships over the years with many small private landowners. Those relationships will facilitate the supply of raw material for the company’s first pellet mill. “If you’ve been in the business for five generations, you have something a lot more valuable than a contract you can work off of,” Wood says. “Primarily, we’re building off our relationships.”

F.E. Wood & Sons’ port of choice, the Port of Portland, still needs the specialized infrastructure to handle wood pellets, such as storage and conveyors, and Wood says the company is in discussions to make that happen. “You do a lot better to make that up-front investment and put in equipment that’s going to handle your product well,” he says. All in all, the proposed pellet mill and port expansion are estimated to cost $80 million and are operating on a loose completion deadline of 2013.

Most ports are willing to work with new industries to expand their own capacities, Wood says. “It’s definitely a mantra for all the U.S. now to try new things in order to find that growth,” he explains, adding that wood pellet exports represent a promising industry. “The big barrier to entry is there isn’t infrastructure at the ports (in the Northeast) to do it currently, but the ports themselves aren’t extremely busy so they’re willing to try pretty much any new industry to drive business.”

Gardner says the pellet export industry is indeed attractive for Maine’s deepwater ports. “We think this would be a blossoming industry for the state of Maine and for the region,” Gardner says. “The Port of Eastport is positioning itself to be a marquee player.”

Eastport has the advantage of being a natural deepwater seaport, which brings down the expansion cost to around $8 million, eased even more by $6.5 million in state funding. But to expand a port that needs to rebuild dredge and berth, along with installing handling and storage infrastructure, costs will linger between $10 million and $25 million, according to Pete Stewart, president and CEO of Forest2Market. “You need a lot,” he says. “It’s not an insignificant amount of capital.”

Stewart adds that Maine does have a good port infrastructure, but the port must be near the source in order for an export business model to pencil out.

Rail Considerations

 So, it would seem port infrastructure is still only a piece of the process, albeit a large one. To have a successful pellet exporting operation, transportation to the port is vital and rail access in Maine is currently limited. But improvements are on the way in that arena, too.

The site chosen for F.E. Wood & Sons’ pellet mill is 28 miles from the Port of Portland, with the Mountain Division rail line running directly between the two. While the state-owned rail line is deactivated, the state has slowly started the rehabilitation process with the pellet mill in mind. “It’s a great piece of support that the state of Maine has shown us,” Wood says. “They’re trying as hard as any government body ever does to give us some infrastructure to give us a competitive advantage.”

In the face of nationwide budget cuts, the state has managed to continue working with F.E. Wood & Sons to find funding for the rail rehabilitation, although progress has been slow and is still not etched in stone, much like the rest of the company’s multifaceted project.

“It’s a growing process,” Wood says. “I know the state supports businesses coming in like this, and this is a great way to put in infrastructure that’s been on their books, and has been sitting idle for 20 years, back to work to help western Maine grow some jobs.”

The Port of Eastport is hoping for a rail infrastructure upgrade, as well, having asked the state to fund such a project in 2009. While that funding was not granted, Gardner says the investment would be justified for a bulk commodities market that is set to explode.

The Port of Eastport has, in fact, never been connected by rail. “So the true potential in the deepest natural seaport, the easternmost seaport in the United States, is sitting here without rail investment,” Gardner laments. “It seems as though if rail investment were to be made anywhere, it would be a great chance for somebody to look at it.”

Gardner likened the scenario at Eastport to a shiny, beautiful brass nozzle with no hose. “So we work the hell out of that nozzle and can’t understand why we can’t get water out of it.” The smartest way to save the rail industry in Maine is to “handshake” it with the state’s ports, he insists. “We can effectively save both industries.”

Wood seems to agree. “There’s infrastructure that you can connect to make these things work,” he says. “It’s just a question of being able to get enough of the pieces to play together.

“The forest resources are here in Maine,” Wood adds. “The labor resources are here and there are certainly a lot of people with the expertise to put them together.”

A Clear Advantage

While a number of advantages for exports reside in the Northeast, and Maine in particular, raw material is much more expensive in the Northeast than in the Southeast, Stewart says, by between $4 and $6 per ton. “But they do have a shorter freight distance to Europe,” he says.

Freight costs from the Northeast to Europe are favorable over the Southeast by $4 per ton, increasing to $7 per ton from the Gulf Coast, Stewart cites. The Northeast has a $4-per-ton advantage over northern Brazil, too.

“So if a (Northeast) plant can get in a position where they have a favorable supplier, who can bring them the right material for a favorable price … they already have a freight advantage, so that would be a real value,” Stewart says.

Soffron believes a large part of the reason the Northeast hasn’t seen a push to enter the export market until recently is because of its strong domestic pellet market in residential heating. “I also think nobody really knew how,” he adds.

Wood says F.E. Wood & Sons is targeting the export market with its development plans to avoid the volatility of the seasonal residential market, and to take advantage of the stable business model the creditworthy European utilities can facilitate.

“We’re closer to Europe from a transportation standpoint than we are to the rest of the U.S.,” Soffron says of Maine. “I think we’ll see growth in the exporting business in general, but certainly we’ll see that from Maine.”

Author: Lisa Gibson
Editor, Biomass Power & Thermal
(701) 738-4952