Alternative market opportunities discussed at 2016 PFI conference

By Katie Fletcher | July 28, 2016

The PFI 2016 conference wrapped in Asheville, North Carolina, this week, bringing together a number of individuals from the public and private sectors, academia and government institutions. Content covered in the conference programming included a range of topics concerning the use and promotion of densified biomass, as well as market trends and policy and regulatory issues relevant to producers. The last session of the conference offered a roundup of potential market opportunities pellet producers may want to consider.

The panel consisted of Michael Scanlon, national sales and marketing manager at American Wood Fibers; Stan Elliot, vice president of sales and marketing at Pacific Coast Pellets; and Scott Jacobs, vice president of AgriRecycle Inc. and president of PurHeat LLC.

Scanlon shared information on American Wood Fibers’ product lines, focusing on equine pellets. He said the process for creating an animal bedding pellet is a little different than fuel pellets, one difference being the raw material used. According to Scanlon, softwood should be used to produce pellets for animals as some hardwoods can be harmful. Black walnut has toxicity that can cause fluid buildup in a horse’s legs, laminitis and increased heart rate. Also, horses tend to eat things in their stall and using softwoods eliminates this potentially becoming a problem.

Pelletized bedding has about the same bulk density as fuel pellets, requires fines less than 1 percent and pellet parameters are similar to fuel pellets, with one-quarter-inch diameter and three-quarter-inch length. AWF’s bedding pellet moisture is less than 5 percent and absorption is generally 300 percent plus weight in one minute. Scanlon forecasts market growth. “I see demand for it on a regular basis, and I do believe it’s going to continue to grow moving forward,” he said.

Scanlon’s been asked if fuel pellets can be used for bedding, but he said pellets should be used for their labeled use. “It was manufactured and designed for that particular purpose,” he emphasized.

Stan Elliot with Pacific Coast Pellets provided insight on the barbecue pellet market, and if a producer should consider them. “It’s a hot topic in our industry right now,” he said. “The bedding pellet segment is growing rapidly as well as the number of barbecue pellet grills and companies seems to be accelerating.”

He mentioned a few places barbecue pellet grills are making their way into the public eye including Men’s Health, The Costco Connection magazine, road shows and more. Elliot also mentioned Traeger Pellet Grills success since it was bought by founder of Skull Candy headphones Rick Alden. “There has been 30 to 40 percent growth since he’s been there,” he said.

Elliot said there are already dozens of producers in the space, and one thing that is really fun about this category is that it’s a hobby for many people. “There isn’t near the price pressure we saw on fuel pellets as there was for barbecue pellets,” Elliot said. “It’s fun money for people, not simply to heat their home.”

Both reasons to and not to think about adding this product line to an operation were shared. Amongst the reasons a producer may want to consider barbecue pellets is that most pellet plants have all of the equipment needed to make barbecue pellets. “You have the mills, you the dryers, you have the packaging,” Elliot said. If a producer needs a different sized bag, most packaging machines can be retrofitted to other sizes, he said. A few other reasons to consider are that most producers have the customer base, there is opportunity to make a higher profit on barbecue pellets, and it’s essentially an offseason product. “When the heating season is over, that’s generally the time the barbecue season is ratcheting up, so it’s nice cash flow in times of the year you’re not really busy,” Elliot told the conference crowd.

Although there are many reasons to consider producing barbecue pellets, it doesn’t make sense for all operations. One reason Elliot provided to abstain from making barbecue pellets is if the producer is too late to the game. If there are a number of others providing the product in the producer’s location, the market analysis may not provide enough room. Minimum raw material quantities may be too large as well. Hickory or mesquite has to be purchased from Texas or Oklahoma by the truckload. “A truckload of mesquite is going to go a long way, it might even be a year supply for you, so if you don’t have enough storage space or you don’t have bin space for these different flavors it might be a challenge for your operation,” he explained.

A few other issues in regard to quantity are a plant might not be set up to ship single pallets or less than T/L quantities, and maybe a producer can’t mix small batches accurately or package smaller-sized bags. Another consideration is a producer needs to give the retailer a reason to buy to stand out over current barbecue pellet competition.

Another part of Elliot’s presentation focused on the blend of barbecue pellets. He said there are hickory pellets out there that actually contain no hickory. In fact, he said, most pellets generally only contain up to 35 percent. Traeger has a patented hickory and mesquite pellet that has no hickory or mesquite in it, but instead essential oils are incorporated for flavoring. Pellets are usually made from oak or alder, depending on the part of the country. There is a methodology to maintain profitability on the product, but even so, Elliot said people are happy with their pellets, and often if a pellet was made entirely from hickory, it’d be putting off too much flavor and overwhelm the taste.

An interesting factor about barbecue pellets is the lack of standards when there are very specific standards for burning pellets for heat.

Elliot leaves the audience to consider the volume differentiation between barbecue and fuel pellets a person will buy. “The average person in my neck of the woods would buy say 150 bags or 3 tons of pellets, and maybe just three bags of barbecue pellets,” he said. However, he added, there is the potential for barbecue pellets profit margin to exceed that achievable with fuel pellets.

According to Elliot, if a producer has a strong customer base, can give a retailer a reason to buy, and has some capacity and needs business in the offseason, barbecue pellets supply a “nice market that is going to continue to grow.”  

The third speaker, Scott Jacobs with PurHeat, discussed a number of the lesser-known market opportunities for pellet manufacturers, including natural gas fracking and direction drilling, absorbent socks/pads, litter and odor control, biochar and activated carbon.

“There are a few markets that have been there in the past that are worth keeping an eye on to see what can help our pellet manufacturing facilities increase throughput,” he said.

According to Jacobs, the natural gas fracking market pumps a lot of water and mud, and they utilize wood pellets as an absorbent to transport that material to a landfill. He explained that the plants pack pellets into a 1-ton super sack. The demonstration video he showed was of the super sack suspended over the mix of water and mud in a 40-foot roll-off container. The sack’s bottom was cut and the pellets fell into the mix. The pellets were then mixed using the bucket on an excavator.

Jacobs said, unlike animal bedding that uses softwood, fracking guys say hardwood works better. “A lot of guys don’t like the softwood—it has more holding capacity—but they are about speed,” he said.

Polymers have been used in the past, but Jacobs said the fracking industry likes wood pellets. Some rigs can even save between $4,000 and $6,000 per day.  

With natural gas production slowing down, this market has decreased dramatically over the past year, Jacobs said, however, “it’s a market we need to keep our finger on the pulse because it does allow our manufacturers to run our plants at a higher capacity, and it doesn’t need a nice, clean raw material source.”

The next market Jacobs discussed is one he stumbled across only a few months ago. This market calls for the screens of finished pellets. “They want something that looks like oatmeal, the real fine cracks and crumbles,” he said. “It’s a market that needs to be utilized because many plants are just taking those screens and sending them back to the furnace or some of them are trying to figure out ways to dispose of them.”

Jacobs said this market relates to fracking, because socks are used around the perimeter of fracking sites for containment.

The screenings off of finished pellet product can also be used for the market for litter and odor control. “The market size is fairly good because a lot of people have indoor pets,” Jacobs said. He added that it’s probably not something you’re going to put in your plant and produce a 2-pound bag, but there are bagging operations that are doing smaller bags that a producer could contract out with. Arm & Hammer is one. “If you have a softwood product and you have a byproduct off of your screen, you can maybe take a look at it,” he said.

Jacobs ended by discussing markets for both biochar and activated carbon, what he called “going off the deep end.”

“One thing that has really interested us other the past couple months is what you can produce biochar out of,” he explained. Jacobs said clean urban waste, such as tree trimmings, can be used to produce biochar, so if a producer has that type of raw material at their disposal, it’s something to look at. Biochar can be produced in the plant and used in things like compost piles to absorb moisture. “It’s a good compost activator, because of its chemical makeup and micro and macro nutrients,” Jacobs added.

The downside is the Capex, but the biochar unit can be set beside a plant’s current dryer, and the material from the dryer can be put right into the unit. Jacobs sees biochar serving the fertilizer market.

As for activated carbon, the market is small, but Jacobs believes it’s going to grow over the next few years. “Market infiltration is in power plants, as they use activated carbon to strip that mercury out to continue to run,” Jacobs said. Activated carbon can be made from material such as construction and demolition waste, and Jacobs said a few in the space are buying coconut shells to make it.

Another use of activated carbon is for gold purification, predominately in Mexico, as well as to purify steel, and to create a stronger bond for cement. “There is a broad spectrum of markets out there, not only niche, but large industrial markets finding a way to utilize biomass,” Jacobs said. “If there is extra raw material, there are other avenues out there for it.”

The program concluded with the now past PFI chairman Stephen Faehner, president and CEO of American Wood Fibers, introducing Chris Amey, commercial director of Rentech Inc., as the new chairman. Stan Elliot with Pacific Coast Fiber serves as the vice chairman, and Lori Hamer of Hamer Pellet Fuel, the secretary/treasurer.

“What gets me excited and differentiates us form other industry associations is the passion of the members,” Amey said at the conference. “There is a real passion to continue to protect and grow this industry. It’s not a job, it’s a livelihood.”