The Pandemic and Industrial Pellet Supply Chain

The COVID-19 pandemic exposed vulnerabilities in many global supply chains, but the U.S. Southeast wood pellet industry proved fairly resilient.
By Anna Simet | August 22, 2021

One unique aspect of U.S. Southeast forests that differentiate them from most others is the ownership model. Nearly all—89 to 90%—are privately owned and managed. What that means, points out Keith Kline, researcher at the Climate Change Science Institute & Center for Bioenergy Sustainability at Oak Ridge National Laboratory, is that landowners have the choice of keeping it as forests—or not. At one point, Kline says, much of Southeast forestland was plantation fields. “The move back to forests was largely supported by the U.S. government, and a main reason why the Southeast has an incredible timber basket,” he says.

Today, these forests are managed for a vast number of uses, including, but certainly not limited to, forest products and bioenergy—i.e., wood pellets. These and other strong, viable markets motivate landowners to best manage their forests to keep them healthy, and harvest, replant (surplus plant, in many cases) and repeat. According to the National Alliance of Forest Owners, private forest owners regenerate an average of 43% more wood than they harvest. That concept is seemingly a difficult one for some to grasp—the fact landowners don’t simply clear-cut forests for money as the end-all, ultimately destroying their livelihoods.

In cases of transitions away from forests, Kline emphasizes, it not the industries the land currently serves. Rather, it is the sale of the land for other uses such as urban expansion and development: construction of housing, airports, shopping malls, etcetera. And of course, climate-related threats. “We want to look at how biomass can help us achieve climate goals,” Kline says. “We have threats to forests related to extreme weather events that are increasing in intensity and frequency—drought, wildfires, diseases, invasive species, saltwater intrusion along the coastlines, and other extreme events like floods and tornados—that are damaging forests and resulting in lots of biomass being piled and burned, or just left to rot. I drove from Tennessee to D.C. and saw many piles built up to be burned along the highway—this is a lot of biomass that could be put to better uses. In most cases, that’s one of the things we’re trying to do—improve management of forests and ensure biomass is put to the best possible use.” 

Wood pellet production is one of these possible uses, Kline says. The Southeast produces a great deal of sawdust from forest-processing activities, one of the drivers of the robust wood pellet manufacturing and export industry that has seen incremental growth over the past decade-plus. “That growth has raised a lot of concern, so there has been much research and study of the supply chain, and the different stakeholders and effects of wood pellet production in the Southeast U.S,” he says.
In a recent DOE-supported study that Kline coauthored, that supply chain was evaluated—specifically, who was affected by the pandemic and to what extent. Kline presented the results of the study to the public during a June 3 IEA Bioenergy webinar.

Natural Resilience
Stakeholders concerned with parts of the wood pellet supply chain that could potentially be affected by the pandemic include: landowners, loggers, sawmills, pulp mills, chippers, truckers, logistic and certification firms, pellet mills and employees, trains and shipping companies, member nations that use bioenergy to displace coal, and other stakeholders.  “There have been a lot of studies on the wood pellet industry and its impacts, but not much about supply chain resilience to unexpected disturbances,” Kline says. “There have been some on the bark beetle infestation, but not to the extent of a pandemic or economic destruction, aside from the recession in 2008 and 2009, but that was more focused on the timber and lumber supply chain.”

In the context of this study, the current supply chain from the Southeast primarily serves Europe and Asia with wood pellets for cofiring, combined heat and power or direct power generation. “We looked at economic and unemployment data to identify effects of COVID-19, and to better understand how the supply chain performed during the pandemic,” Kline says. “As most already knew, the broader economy was severely impacted, not just the U.S., but the world. Many sectors had industries experience huge disruptions in both employment and production, and they’re still in different stages of recovery. In the U.S., for example, unemployment jumped by 3.5% to 15% in one month.”

These particular impacts were felt along the supply chain, Kline says. The places the study found evidence of impact were especially related to skilled workers, such as lumber mill workers being laid off or unavailable due to sickness or mills closing, transportation and trucking, as well as logistics handling—for example, workers in forestry-skilled areas who operate specialized equipment.  “They are limited in number, and some were taken out of the workforce, so that did have an impact on the supply chain,” he says. “But we were surprised to see that while these impacts were apparent in the overall forestry and timber industry for lumber, the pellet supply chain showed minimal impacts.”

Summarizing the study data, using the timeframe of 2018-’20 and comparing it to post-COVID-19 trends from March 2020 to November, pellet industry employees in the Southeast U.S. actually increased by 4%, from 1,357 to 1,407, according to U.S. EIA data. Pellet production increased by 6% (from 606,181 to 643,422 tons), the average price per ton fell by 1% from $167.05 to $165.64, and the average export volume increased by 8%, from 536,147 tons to 576,771. “This is actually pretty astounding,” Kline says. “We were surprised to see these positive apparent effects, but I should mention that the industry had hoped to see even higher numbers in terms of growth, so these numbers were a little below targets. It did have somewhat of an impact, but not nearly the kind of impacts in other sectors.”

As for factors that increased resilience, they included rapid and large federal and state interventions that facilitated provisions of personal protective equipment, the Paycheck Protection Program, and the designation of an essential industry, meaning exemption from many restrictions. “Additionally, the pellet industry was benefitted by automation and mechanization approaches for field operations and logistics,” Kline says. “Really, not that many people are required to work in close environments. Much of it is open-air work so there is less likelihood of transmission, and this is an industry that, over decades, has by necessity established a culture of safety and safety communications to keep injuries low. Forest work—especially field work—is inherently dangerous, so this established culture of safety was easily adapted to best practices and behaviors during the pandemic, and that helped many of the sectors have minimal cases in the workforce.”

Long-term, fixed contracts to supply industrial wood pellets to the power plants, many of which are take-or-pay terms, contributed to the stability of the industry as well, according to Kline. “There is a lot of vertical integration going on and partnerships all along the supply chain in the sector, and these are things we found that also increased resilience,” he says.

As for recommendations to further increase resilience and help safeguard from future disturbances in the Southeast in particular, it may be done by establishing some trade schools for specialized labor, Kline says. “This is one of the things the industry has been asking for, and [stakeholders] feel that the experience with the pandemic underscored the importance of having skilled, specialized labor that is not readily available in the forest industry.”

In addition, increased local capacities for services in logistics and transportation would prevent reliance on any one external contractor that might suffer a problem or limitation from the pandemic, and in turn impact the supply chain, Kline says.

The main finding, he adds, is that bioenergy supply chains throughout the globe showed remarkable variability in terms of resilience to the pandemic. “While the Southeast showed little impact, others were severely impacted and basically shut down, whether during the first, second or third wave.” 

As for global impacts on the industrial wood pellet sector, it has had a mix of implications. Early on, a survey by Hawkins Wright indicated that half of respondents were experiencing negative impacts, particularly raw material availability. More than a year later, the issue hasn’t gone away, but it has improved, says Rachael Levinson, biomass research manager at Hawkins Wright.

Global Perspective
While the pandemic affected raw material availability early on, it was not to the extent many feared, and the impact was short-lived, according to Levinson. “We heard very few reports of delayed or disrupted contracted pellet deliveries during 2020,” she says.

In fact, the strong rebound of the U.S. and European lumber markets later in 2020 and early 2021 greatly benefited pellet producers reliant on sawmill residues for feedstock. “Plus, an abundance of raw materials in central Europe, largely caused by the bark beetle infestation and damaged wood from storms, helped some European countries post record production levels in 2020,” Levinson says. “In the U.S. South, a booming lumber market had little impact on stumpage prices and raw material costs have held largely steady.”

As for production, Levinson says any slowdown was mostly due to the oversupply of pellets. “Low industrial spot prices meant most industrial producers in North America and Europe produced pellets only to fulfill existing contracts, leaving very little to sell into the spot market,” she says. “We are, however, hearing reports that the worsening COVID -19 situation in Vietnam has led to a new government-mandated lockdown that includes furniture manufacturers. Furniture production residue is the primary source of raw material for pellet producers in the region, so we could see the impact of that in the coming weeks. It is a good reminder that the pandemic is not yet over and could still have an impact on the wood pellet market.”

And unrelated to the pandemic, Levinson adds, the recent wildfires in British Columbia have curtailed sawmill operating rates and are likely to impact future sawmill residue availability to pellet producers in the province.

As for project development, travel restrictions held up some new wood pellet mill projects under construction, Levinson says. “Equipment providers and specialists were unable to travel to new sites to carry out the necessary work, which delayed new mills starting up. As a result, the startup of new projects in 2020 was skewed toward the end of the year, and some continue to be delayed in 2021.

 The lack of travel, she adds, meant that some end users, particularly Japanese projects, were unable to travel to visit potential new producers to carry out the usual due diligence checks. “We understand that, for some, this delayed the signing of new offtake contracts slowed the progression of planned pellet mill projects in earlier stages of development. On the demand side, the U.K.’s new MGT Power biomass-fired power plant faced some construction delays, related in part to the pandemic.” 

As for what the industry or supply chain stakeholders could do to better insulate themselves from a similar event in the future, like Kline, Levinson says it fared relatively well compared to other sectors. “As been discussed many times, increased storage of wood pellets could help mitigate against volatility in the spot market or protect against unforeseen events,” she adds. “But there is always the question of who bears the economic burden—producers, traders or end users.

The complete study referenced in the article can be accessed here.

Kline KL, Dale VH, Rose E. 2021.  Resilience lessons from SE US woody biomass supply chain to the Covid-19 pandemic. Frontiers in Forests and Global Change 4, 11 August 2021


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