Words from the Wise

Four pellet plant executives sit down for a frank discussion regarding the industry’s biggest challenges, the importance of building a cohesive and effective team, and plans for the next 18 months.
By Tim Portz | May 21, 2015

At this year’s International Biomass Conference & Expo, Biomass Magazine invited four executives from the pellet sector to a roundtable conversation about their businesses, teams and outlooks for the near future. Joining the discussion were James Roecker, CEO at Georgia Biomass; Bruce Lisle, CEO at Energex Pellet Fuel Inc.; T.J. Morice, vice president of marketing and operations at Marth Companies, and Ben Rose, CEO of Michigan Wood Fuels. The following are excerpts from their conversation.

PORTZ: What are the biggest challenges facing this industry right now?

MORICE: I’ll jump in. I’m big on the domestic heating market. That’s our focus. I think the challenge there is establishing a value proposition. Right now, we’re still at that commodity stage, comparing it only on a dollars-and-cents basis and we haven’t, as an industry, nor have we with government agencies, whether it be the forest service, DOE or others, been able to establish metrics to add a value to the sustainability aspect. Those are big things in establishing some of that visibility and building off it going forward, because unfortunately, unlike the East Coast which has this built-in, 60 percent-plus reliance on heating oil, the Midwest has maybe 25 to 30 percent on liquid propane. They both have fluctuations. We had a banner year last season because liquid propane was $5 to $7 a gallon in areas, and this year it’s 75 cents to $1.50, so you've got these major swings in price. And until people understand the total value proposition, including the local economic benefits and the environmental benefits, we'll be stuck in the rut of trying to simply produce “cheap” renewable energy.

LISLE: Let me add to that. Last year, when fuel oil was trading at four bucks a gallon, I equated that to about $470 per ton of pellets. You go into the big boxes and they are selling it for $225, so we’re less than half. Now the price of oil is down, and we’re not as big of a discount, so people are complaining. But if you look at the price of pellets over the long term, we’re stable. I had a retailer once this year come to me and say, “Well, you know the price of oil is down, why isn’t the price of your pellets down?” My comment back to him was, ‘Well, when the price of oil went up, why didn’t we spike it?’ Getting rid of some of that volatility is one of the benefits of pellets, I think, but consumers don’t see the intrinsic value when oil is at 50 bucks a barrel.

ROSE: I think one of the challenges we face, as an industry, is  looking to other models to make our product even more convenient to use. People use it, absolutely. And they love it, but I think there are ways in which we still have to evolve and get creative about how we deliver the product, and create multiple ways to use it other than just selling it in 40-pound bags that get carried into a home.

PORTZ: Are you talking about bulk distribution?

ROSE: There are lots of things people do. Europe has tried a lot of things and laid out a pretty good infrastructure, but those may not work here. There are lots of things that work in Europe that don’t work here. The distances are different, the density of users is different here. We are still early in the industry’s development, in my opinion. We’re not infants anymore. Maybe we’re toddlers.

ROECKER: On the industrial side, we’re definitely toddlers. Several companies have had the idea of jumping into the market to take advantage of the European subsidy schemes, and, unfortunately, I believe we have hit a plateau. I still have a lot of hope for the industry, and I think there is still going to be some substantial growth, but I think we are perhaps two years behind what the industry was expecting and projecting. Unfortunately, when the off-take agreements were not being made available at the expected level, project financing fell short of expectations. This has led to several announcements of new pellet mill construction being made, and the projects have not come to fruition. I think this really hurts the credibility of our industry.

LISLE: You know Jim, to add on to that, one of the things about the domestic industry is that when we built these plants, we didn’t have offtake agreements. We built them under the philosophy of “Build it and they will come.” So we either put up our own cash, begged, borrowed or stole, loaned to build these plants with the idea that we would also build the markets, and that’s what some of the early guys did, like you, T.J., in the Midwest. So you look at the shortage we had this year, and in ‘08, the last shortage we had before this one, was followed by a major expansion in capacity being built, and we flooded the market, dropped prices and then saw some of that new production drop off as they tried to buy their way into the market. They didn’t make any money. This time, with all of the regulatory changes in finance, it is difficult to get the money to build capacity that equalizes supply and demand so we don’t have the shortages. There was fuel out west, there was fuel in the south, but its logistics. We’re not in the pellet business, we’re in the logistics business. So again, we built our capacity in the domestic market in a completely different way than what the guys in the south did. Without offtake agreements, its difficult to get financing.

ROSE: We’re seeing creative ways that our customers, and I’m sure all of yours, are taking this shortage issue or supply issue very seriously, and for the first time, they are now actually treating us like more equal partners. Contracts and schedules are being offered for delivery. That’s why I talk about the maturity and the evolution of the business. Our industry is really very disjointed, very diffuse, lots of different ways of doing business with the customers. I think best practices and standards are starting to evolve. I think people understand, as consumers and retailers, that they have to buy earlier and buy more consistently. It’s not good for anyone, any of our supply chain on either end, to be shutting down and starting up, even for short periods of time. I think there is progress, but it is frustrating. I share everyone’s frustration. I think there have been more steps  in the past year in improving some of that information and moving product across regions to address this issue, more than I’ve seen in the past seven or eight years since I started.

PORTZ: This next question is about people. It’s about the importance of team and building a good team and then retaining those folks. Can you talk about your approaches to building a quality team?

MORICE: I like to keep it simple. Hire a good person. I think clarity and focus are the big things. What are you doing? Why are you doing it? Who is doing what at the facility?  Making sure  that  everyone in the facility is communicating and knows priorities, so everyone is pulling in the same direction. It doesn’t matter what the facility is, in this case it’s a pellet facility, but we do animal bedding, we do wood flour, we do a lot of things, we do up to a quarter of a million tons a year. In each of those entities, everyone has their place and they’ve got to know what they are doing and why they are doing it. As for retaining people, we are really blessed, because we are in the Midwest, folks have a good work ethic, and we primarily locate our facilities in rural farming areas where people aren’t afraid to work.

LISLE: Initially, it’s been the industry that has had a  problem. Like you guys in the south, when you are looking for someone with experience in the pelleting industry, they just aren’t there. If you are in the chemical business, you’ve got a heck of a population of potential employees and managers who could help. But in pellets, we’re so young, we haven’t nurtured that personnel stable. So we’ve had to develop it. From our company’s perspective, we work in teams at each of the production sites. We try keep a good benefit plan and we’re also pretty rural, which gives us access to a good work ethic. We’ve got good tenure. I’ve got people who have worked for me for 25 years.

ROSE: There is no pellet engineering degree, like there is a chemical engineering degree. So we train our own, typically. Once you build a culture in a typically rural area around your plant, you try to hire people with aptitude and attitude, and then train the specific skills. The way we run our plant may be very different than the way T.J. or Bruce have divided up the skills or the work required for their positions, so we try to hire the right people and then train them to be the right skilled worker. That seems to work. It sounds easier than any of it is.

ROECKER: It’s kind of cliché, but we absolutely regard our people as our most important asset. Without the employees we have, we couldn’t accomplish the things we do, but it’s a big challenge as well. We've talked about how there is a little bit of black art in pellet making, particularly from an equipment standpoint, as there are some real challenges. Because our industry is so immature, even the equipment OEMs don’t have it all figured out. So now that we have a team that has, on their own for the most part, figured out some of the secrets about the best way to make our plant run, we’ve got to do everything possible to hang on to those guys. Something we have started doing with some success is recruiting part-time technical support through an engineering internship program that we have established with Georgia Tech. We started last year with three engineers, and we've got three more coming in this summer.

PORTZ: What is the near-term outlook for your businesses moving forward? What is on your radar for the next 12 to 18 months?

MORICE: For us at Marth, I think it is incremental growth.  We try to avoid the roller coaster, but sometimes you can’t because of fossil fuel markets, which can drastically impact home heating. We have targets for some incremental growth, and we have orders for that growth. We should be fortunate enough to achieve it.

LISLE: Since I’ve been back in the industry for a couple of years, I’ve been trying to get our plants back up to nameplate capacity, so as a company we’re reviewing both of our facilities to get them there. My philosophy is 93 percent availability, 351 days a year. That is what my target is. That’s where I want to be, and it gets me very close to nameplate. It would do a lot of things. It gives us more product available for market development, and it lets us satisfy our customer’s requirements. The other thing that is really promising is bulk delivery. We made a major investment at our central Pennsylvania plant to deliver bulk now. We’ve got a couple of trucks out there, and we deliver bulk product to customers. We’re seeing major growth opportunities in that area.

ROSE: We’re going to be doing much of the same as Bruce just mentioned. We’re investing in the plant to make it more effective and efficient, higher availability, closer to its nameplate. And we’re going to be content with some steady, slow growth. We’re not looking to double the size of the plant. We’re still learning.

ROECKER: Our No. 1 focus is to make sure we have a safe, reliable plant to operate. If we need to make additional investment in that area to improve, then we will. Outside of that, we are going to maximize the capability of the asset we have, to our nameplate capacity. We’re fortunate to have a significant amount of our production dedicated to long-term contracts through the end of the decade. Still, based on our large production volume, that leaves a considerable portion that we are actively looking to find a home for. We’re essentially sold out this year, but next year we're excited about the opportunity to move pellets into some different areas.

Editor’s note: A full transcript of this interview will be posted soon.

Author: Tim Portz
Vice President of Content & Executive Editor,
Biomass Magazine
[email protected]