A blistering hot late June in Charleston saw the uniting of members and supply chain partners of &nbsp; the United States domestic wood pellet heating market to discuss the state of the industry, with policy, inflation and the challenges brought by a historically warm winter being the most-discussed topics.Tim Portz, executive director of the Pellet Fuels Institute, opened the conference by providing an overview of the organization’s activities since last year’s event, which included two fly-ins to Capitol Hill—one in the fall and another in early spring that saw visits to 28 congressional member offices. “We met with several members themselves and had productive conversations—this is a pretty important mark of what we do an as organization,” Portz said. “It can be difficult to measure the impact of any singular fly-in ... if you’ve been on one, you know that you drop into someone’s office and there are people coming and going, and it can be tough to engage someone’s attention ... I’m very pleased with the strong fly-in ... Reality is that the steady drumbeat of telling our story is absolutely vital—if we don’t tell our story, someone else will on our behalf, and not necessarily in the most positive light.”Following Portz, Connor Murphy, operations lead specialist at the U.S. Energy Information Administration, discussed the U.S. Monthly Densified Biomass Fuel Report data and how the most recent heating season sized up to previous years.Crunching the Numbers&nbsp; Murphy highlighted several key takeaways from the report, which has been published monthly for the past eight years. Overall, he said, 2023 was a below average year for the domestic pellet market. Though production was up, domestic sales total quantities were down, and revenue only saw a marginal inflationary gain. As for the export industry, 2023 was another above average year for that market.Another takeaway Murphy highlighted was that 2023 saw the second-largest feedstock purchase total in the survey’s history, at just over 21 million tons. “A slight decrease from last year, but still a strong year,” he said. Murphy added that the EIA has received feedback about devising a more effective way to differentiate feedstock value—i.e., green tons vs. bone dry tons—and that his team at the EIA is working on it.As for production, total premium/standard pellet output for 2023 was 1.849 million tons. “The production of total premium/standard pellets was up when compared to the past two years, but did not outpace the record year that we saw in 2019,” Murphy said. “2023 was a pretty strong year when it came to production. It was steady across the year with increased production across all regions, and this is mainly because we ended last heating season with pretty low inventories, so producers ramped up production ... there were some news stories out there saying we were going to have a cold winter—extreme cold—and unfortunately, that didn’t come to fruition. The large production total has caused a bit more inventory left over after what was a mild winter.”On the export market, Murphy said utility pellet production for 2023 was 8.976 million tons. “We saw the largest year for utility production in the history of our survey,” he said. “2024 is currently trending to outpace 2023 as well. For the first quarter of 2023, there was just over 2 million tons of production ... in the first quarter of 2024, we’ve already seen 2.2 million tons of utility pellet production.”Moving to domestic sales, quantities were slightly down from 2022 at about 1.78 million tons. March 2023 set a record for lowest total sales during that month since the report’s inception. “Sales revenue looks nicer—the values are higher compared to previous years—but a lot of that can be explained away to inflationary influences,” Murphy said. Total domestic sales revenue for 2023 was $399.9 million.&nbsp;Export sales saw record-breaking months for five of the 12 months, according to Murphy. Approximately 8.58 million tons of industrial pellets were exported in 2023, with total revenue of $1.642 million. “Export sales in 2023, for quantity and revenue, were just below what we saw last year,” he said.Segueing into heating degree days (HDDs), the 2023-’24 heating season saw “an extremely warm beginning,” Murphy said. “This period was the third warmest in the 129 years of NOAA’s [National Oceanic and Atmospheric Administration] data collection.” Overall, he said, it was the warmest winter on record. “For this industry, the critical regions of the domestic wood pellet market ... those northern states had anywhere from 5 to 7 degree anomalies from average, and in some places, we saw 9-plus degrees. A few degrees can really be the difference whether people use the pellets they bought.”Murphy explained the basis of heating degree day (HDD) rankings, defining an HDD as a measurement designed to quantify the demand for energy needed to heat a building or home, based on the assumption that when the outside temperature is 65 degrees Fahrenheit, homes don’t need heating or cooling to be comfortable.Finally, Murphy said there are some line items the EIA is working on, including redefining regional boundaries and potentially getting barbeque pellets added to the survey. “There’s a bit of disagreement—we are talking about trying to include them and it hasn’t gained a lot of traction—but we continue to advocate for that.”Murphy closed by thanking the producers who compile and submit their data to the EIA every month, on time. “If you’re someone who doesn’t submit it ... let’s get you added. It matters more if everyone in the industry participates.”&nbsp; Global Markets&nbsp; Via a video presentation, Gilles Gauthier, research and business development manager at Hawkins Wright, provided an update on European Union pellet markets. As for global market growth, it stalled from 2021 to 2023, he said.For the EU industrial market, the situation wasn’t optimal to produce electricity from pellets in 2022 and 2023, for a number of reasons. In 2022, he said, an energy crisis was prompted by the Russian invasion of the Ukraine, causing high natural gas and power prices, thus making wood pellets more economical. However, there was an undersupply of wood pellets, he said. &nbsp;“In 2023, the situation was different. The energy markets began to normalize over the course of the year, so electricity from biomass decreased in 2023.” &nbsp;On top of that, he said, some units in the United Kingdom faced disruptive market conditions due to some incentive scheme changes.As for the residential market, pellet use has been lower-paced than usual, Gauthier said, with the main reason being energy demand—as was the case in the U.S., a warmer winter and fewer HDDs. “From 2020-’21, there was a high demand for heat, but for the past two heating seasons, the need for heating houses was lower than usual,” he said. A mild and wet winter was the case for most of Europe, he said, aside from Sweden, which experienced a much colder-than-usual heating season.The residential market also saw the aforementioned “shortage” experienced by the industrial market, with very high energy prices leading to &nbsp;dramatic demand and price increases for pellets, in October 2022. “The reaction was basically to use as little energy as possible, including pellets, because of prices,” Gauthier said.When the situation improved, “producers in Europe were sitting on a big pile of pellets, and price drops and allowed people to reorder,” Gauthier said. Sales were strong from February 2023 through April, depending on the country. “Then we saw something surprising and different—sales, orders of pellets, were maintained for spring and summer for most of the market. So not only did people buy at the end of the heating season, they continued after. It’s likely they bought too many for storage ... as a consequence, when we were heading for 2023-‘24, people entered the heating season with a lot pellets ... a very high level of stock.”The past two seasons have seen unusual purchasing patterns by consumers, he added. Rather than buying pellets in August and September to store and use as needed during the first part of the heating season and restocking midway through, the market hasn’t seen the initial surge of buying. Rather, he said, consumers are buying what they need in small quantities. “They didn’t need to buy pellets in the beginning of the heating season, like they usually do ... the end user is changing [habits], buying what they need in small quantities ... they now have confidence there won’t be a shortage, and in low prices.”For appliance purchases, the strong pellet boiler and stove sales seen in recent years have slowed down. “We have seen a big change in that market element recently,” Gauthier said. Numbers for Italy were not available by the time of the conference, but Gauthier said the country was no longer “the star of the market. There [used to be] significant sales—130,000 [units] a year—but the market has very much matured,” he said. Now, he added, most new sales are replacing old pellet systems, which doesn’t create additional demand. France has been a dynamic market in recent years with more than 200,000 stove sales in 2022—new installations—but dropped to 70,000 units during the past heating season. Other countries, including Germany, Austria and Spain, had strong sales in 2022 for boilers and stoves, but markets crashed in most of these countries due to pellet market prices. “Unfortunately, those markets haven’t normalized; it takes a while for the trust to come back,” Gauthier said, adding that some recent changes in the support schemes in different countries also had an impact. “If I would speak about recovery, Austria and Poland have seen nice recoveries, but for the rest ... 2024 will be of levels 2020 or 2021, and 2022 will remain a record year for sales.”The market has experienced considerable turbulence from the shortage to oversupply, but prices and the overall situation are normalizing, Gauthier added. He concluded his presentation by touching on supply markets, stating that there is currently less incentive than there was before for the European heating market to import pellets from certain countries, including North America. “If we look at the trade, on the industrial level, we see a shift from the U.S. and Canada to Asia,” he said. “Italy is strongly relying on the South American supply, mainly Brazil, for some of cheapest pellets they can find for their markets, on top of the European market supply.”Producer Panel&nbsp;&nbsp; The final session of the conference included a panel of pellet manufacturers discussing the past season, challenges, priorities and strategy. Panelists were first asked how producers have managed or adapted to challenging conditions, including soft sales and a surplus of inventory, warm weather and inflation. “It puts a lot of stress on our business calibrations,” said Brett Jordan, CEO of Lignetics Inc. “…One of the benefits of the EIA [Monthly Densified Biomass Fuel] report is that as an industry, I think we have so much better visibility and can be smarter about our inventory planning, and make better decisions. On a longer-term basis, I think the answer is to continue to diversify into new product opportunities—there are a lot of them out there, I’m a true believer that there are many that we haven’t even touched yet ... Now coming off of two of the warmest winters in 125 years, that’s tough. You keep telling yourself, we’re due, we just want to have one average winter, but in the meantime, you have to manage the business and deal with realities.”Within this scenario, working to ensure the people and supply chain partners integral to the wood pellet business are taken care of year-round is another challenge, added Stephen Faehner, president of American Wood Fibers.Harold Arnold, president of Fram Renewable Fuels, said that for the export market, 2023 was “not as good of a year as we would have liked to have seen. Many years ago, we made the conscious decision to be fully contracted, somewhere between 90% and 95% of our production capacity.” He said that overseas power generators’ electricity prices dropped and subsidy formulas changed for some, which has impacted consumption. “The warehouses in Europe are full,” he said. Arnold emphasized the challenges ahead regarding the EU’s Deforestation Regulation and its implications. “It’s going to impact all of us—export producers, anybody in the timber or forest products industry ... it has the potential to kill the industry, not only wood pellets but lumber and wood products in general,” he said. “It’s long, and it’s going to stay and not be repealed anytime soon—implementation is the question, how will it be implemented? EU bureaucrats move very slowly, so there is a good chance it’ll be delayed ... but it’s going to affect a lot of people.” &nbsp;He added that each EU member state may have its own interpretation of the meaning of deforestation, so a lack of cohesiveness could be a challenge on top of mandatory data collection and submission. “We have a lot of people working on it, including USIPA’s consulting group in Brussels ... we think there is a way to do it, it’s just going to take a lot of work.”As for the BBQ pellet market, which saw a period of strong growth during COVID-19, it has leveled off, according to Jeff Theissen, president of Dansons. “It has returned to 2019 levels—stabilized after the covid boom that was good and bad at the same time—but it is a stable business, more stable than the heating business.”While labor availability has improved from post-covid conditions, Jordan said starting wages to attract talent are 20% to 25% higher than they were a couple of years ago. “That’s just to get application flow ... we have seen some retraction of pallet pricing, but every line item we have is still experiencing inflation today, so it’s not going away, and it hasn’t gone backward with the exception of pallets.”Arnold said that Fram is “working our fingers to the bone trying to manage [inflation].” Using the benchmark of the first quarter of 2021, by the end of that year, costs went up 31%, he said. While energy prices have come down, he said, inflation pressures remain for skilled labor positions—i.e., electricians and mechanics. “We’ve done a lot of things to reduce our internal costs—we use fewer outside contractors now ... we don’t rent heavy machinery from the outside; that paid for itself in the first four months,” Arnold said. “We’ve been doing a lot of things internally to bring costs down, and now we’re about 16% of where we were in the first quarter of 2021. We’re working everything to try to push it down.”Though power prices have come down in many places, Faehner pointed out they still remain high in some areas—such as California—where American Wood Fibers has two wood fiber shavings mills. “Most of us use a lot of power—we all run facilities 24/6 or 24/7, they start up and don’t stop ... it’s not like we can pick the time of day we want to run to get off-peak power prices, so power, for us, is a problem.”Jordan agreed, adding that Lignetics is “kind of petrified of what could happen in the power market—we’ve seen a taste of it ... we have seen some come back down ... the market is saying it’s going to get worse. The datacenters supporting the massive investments in AI, we don’t have that power on the grid, and we don’t have a plan as to &nbsp;how we’re going to generate it ... When I look at that dynamic with the future cost of electricity ... the comfortable, predictable electricity costs in the past, I don’t think that’s our future.”Shifting gears to increasing widespread recognition of the benefits of wood pellets, Arnold said one key is getting people who support and understand the industry elected, as well as undermining the efforts of industry smear campaigners. “These professional protesters, they like doing this. They’re well educated and now they’re well funded, and they communicate well with the media,” he said.Jordan added that a common mindset in the industry used to be that it was best to avoid getting involved in government affairs, stay under the radar and not attract attention, but that no longer works. “The past couple of years have proved that’s not a sustainable strategy,” he said. “We need to focus on efforts to ensure we understand what’s happening at federal and state levels, and at PFI, we’re just scratching the surface of what we can do proactively ... the freight train is coming our way, and we need to react. Organizations are out there doing a lot, and they aren’t necessarily aligned with us.”The industry’s most important alliance, Faehner said, are those who represent the pellet space—retail in particular. “The power behind retail is probably way further reaching as we can get as manufacturing trade organization ... the ability for us to message together and promote the positive. The story that we have—sometimes &nbsp;we forget. I’m a fourth-generation sawdust kid and sometimes I forget ... we take stuff that is normally thrown away and do something good. The power of messaging, the power of partnerships, the power of our collaborators—it’s the feedstock folks to the end users. Every time we see one of those [anti-biomass] articles, it’s a reminder we’ve got to be on the offensive, rather than the defensive, all the time ... we have a great message.” &nbsp; Author: Anna Simet&nbsp; asimet@bbiinternational.com

2024-08-14 - Wood Pellets in the Holy City (Biomass Magazine)

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The Pellet Fuels Institute’s Annual Conference convened in Charleston, South Carolina, to discuss the past year’s policy wins and priorities, industry stakeholder opportunities and challenges, and more. 

Wood Pellets in the Holy City

Wood Pellets in the Holy City

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Wood Pellets in the Holy City