Coming out Hot

After several consecutive soft winters, signs point to a rebound for most U.S. pellet manufacturers.
By Anna Simet | January 31, 2018

Acombination of record-breaking cold and rocketing heating fuel prices have nearly made it official—the 2017-’18 heating season will serve as a healthy rebound for Northeast wood pellet businesses, and likely a solid season across the board for U.S. producers.

The week ending Jan. 6 was approximately 34 percent colder than normal for the U.S., with parts of the eastern U.S. at 62 percent colder than average. Limitations on regional national gas in New England resulted in spiking prices and increased oil burning for electricity generation. In New York, utility Central Hudson informed customers that record amounts of natural gas were consumed by customers during an intense cold snap beginning on Jan. 5—breaking records on two consecutive days—and advised customers to turn down the heat when leaving their homes, as widespread demand was causing gas and electric supply costs to surge. That same week, ISO New England released statements issuing concerns about the distribution of fuel inventories across the region, and emission limits for some generators for the remainder of the winter. “Because of the region’s heavy reliance on oil-fired power plants for the past 12 days, several are running low and fuel replenishment will be critical for these facilities, especially if the region encounters another cold snap soon after this one…a few power plants have reported that they are nearing their emissions limitations. The cold weather continues to affect wholesale energy prices, as well as the types of power plants that are being used to meet demand.”

The U.S. EIA recently released its Winter Fuel Outlook, reporting that for all major home heating fuels, costs will rise this winter because of expected colder weather and higher energy costs. Increases will vary by fuel, with natural gas expenditures forecast to rise by 12 percent, home heating oil by 17 percent, electricity by 8 percent, and propane by 18 percent. In the Northeast, the U.S. region most reliant on heating oil at 21 percent, the EIA expects households using primarily with heating oil to spend an average of $215 more this winter than last winter, reflecting retail prices that are 25 cents per gallon higher, and consumption 6 percent higher than last winter. In the scenario that assumes a 10 percent colder-than-forecast winter, projected expenditures are $397 (32 percent) higher than last winter, according to the EIA. The report does not include the expected increase in cost for homeowners using wood pellets, which provide more cost stability than traditional heating fuels, a benefit often presented to customers as a major advantage. According to the New Hampshire Office of Strategic Initiative’s Weekly Heating Fuel Report, for the week of Jan. 8, the average price per ton of wood pellets in-state was about $275 per ton.

Stephen Faehner, CEO of American Wood Fibers, which operates plants in Ohio, Virginia and Wisconsin, says Maryland, where AWF is headquartered, has experienced an unusually cold winter, with 20 days below freezing. Inventory is low and pellets have been moving quickly, he says, especially when compared to the last few winters. While a boost to the industry, Faehner says, the extreme cold also presents challenges, one of which the length of time it can take to get a plant serviced when in need of repairs, as operating in subzero temperatures can be problematic.

In Mifflintown, Pennsylvania, Bruce Lisle, president and CEO of 100,000-annual-ton producer Energex, is enthusiastic about business this winter. “We’re back to normal,” he says. “Our heating degree days in the Northeast and Mid-Atlantic are up about 16 to 17 percent from last year, even though that’s only about two or three percent less than what they determine to be normal. We’re selling a lot more fuel, no question. Especially coming back after the Christmas holiday when the weather hit—it really hit hard.”

Up in the north Northeast, Maine Fuel Pellet Alliance Executive Director Bill Bell says Maine producers Maine Woods Pellets and Lignetics of Maine also report a solid, busy season, including calls from customers who they hadn’t heard from in a long time, “with many new orders and outbound shipments being made.”

Out on the West Coast, which experienced a well-above-average season last winter, business isn’t quite as momentous as last year, but still solid, says Stan Elliot, vice president of sales and marketing at 45,000-ton-per-year Pacific Coast Pellets, and chairman of the Pellet Fuels Institute. “We haven’t had the extreme cold that we had last year, but it’s been cold enough so that inventory levels for retail, distribution and homeowners were so low that we got off to a really strong start in August and September,” he says. “And we had good, cold weather in October and November, so the ball kept rolling.”

Now, Elliot says, a handful of producers in the West are at point where they have run out of all inventory. “It’s almost a perfect scenario for most folks,” he says. “We have had enough for most of the season, and none left on the ground, so they are shipping as they produce. That means everyone will probably end up fairly clean, which is the goal for most pellet producers.”

Elliot says an exception is that, because there hasn’t been the intense cold that there was last year, lower-quality pellets aren’t moving well. “Medium- or high-quality no problem, but if you are lower range, there isn’t that pull, simply because people are able to get the brand they want, and don’t have to settle for a lower-grade pellet. Last year, everyone sold everything.”

Elliot adds that some West Coast business is starting to go to the Northeast. “Some are gaining sales by shipping out there,” he says. “We have referred a few people to try to help them out…a couple of producers like us are sending some East. In quieter years, we usually do that up until November, then we gauge the status of our markets, and shut those shipments off, because we need it in our home markets.”

Faehner says that during some routine checks—for example, a recent visit to some Kentucky retailers—stores have been out of pellets. “There are a couple of big box outlets there, and they didn’t have any pellets,” he says. “Retailers are very reluctant to buy later in the season, because they don’t want to get stuck with inventory. We’ve been offering customers split loads to help with that, but we need to watch this, because it is a trend that could work against us.”

Author: Anna Simet
Editor, Pellet Mill Magazine
[email protected]