FutureMetrics: low-cost natural gas beneficial to wood to energy

By Anna Simet | January 14, 2013

Wood-to-energy will significantly benefit from the low-cost natural gas, according to a new white paper released from FutureMetrics Inc., including European wood pellet export operations and the domestic wood pellet boiler sector.

That assertion is based on the prediction that the U.S. will see a rapid transition from gasoline and diesel fuel to compressed natural gas (CNG), resulting in lower operating/transportation costs. This will potentially reduce woody feedstock costs, making them cost-competitive with pipeline natural gas and CNG, according to FutureMetrics.

The white paper suggests that because natural gas converts to a diesel fuel equivalent that is about 40 percent of the cost of diesel at today’s prices, the impact on wood prices will be significant. “Furthermore, even if the industrial price of natural gas increases, the fixed cost component of the all-in CNG cost will remain relatively constant,” it states. “In 36 months we forecast that CNG fuel will be 31.8 percent the cost of diesel on a per gallon equivalent.”

The paper assumes that CNG pricing would be less volatile than diesel fuel, since it is not exposed to geopolitical risk. In one example, FutureMetrics calculates the drop in operating costs to a wood-to-energy operation to be about a 49 percent for wood costs at the gate, or about $18.50 per green ton less than it would be if diesel is at $5.39 per gallon at the end of 2015 (assuming industrial priced natural gas at about $4.60 per MMBtu in Sept., 2015).

The paper also translates what such a scenario might mean for a wood pellet export operation, and though the impacts of low-cost CNG in the domestic pellet boiler sector are more complex to model, predicts lower-priced pellets.

To download the paper, click here.