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© Copyright 2018 RISI, Inc. | Proprietary Information
North American Bioenergy OutlookWood Pellets & Biomass Power 2018 Update
Sarah MartinAssociate Economist, Wood Products and Bioenergy
North American ConferenceOctober 2018
2© Copyright 2018 RISI, Inc. | Proprietary Information
• Current market conditions• North American pellet & biomass power demand Energy and weather limit growth in residential pellet demand Biomass power demand undermined by policies in the USA and Canada Offshore markets continue to drive export pellet production in North America
• North American wood fiber supply North American wood fiber supply limitations will determine major players in offshore markets
Agenda
1 Market ConditionsCurrent
3© Copyright 2018 RISI, Inc. | Proprietary Information
4© Copyright 2018 RISI, Inc. | Proprietary Information
Wood Fiber Consumption: Biomass Power Remains the Largest Bioenergy Market in 2017Million Dry Short Tons
0
5
10
15
20
25
30
35
2012 2013 2014 2015 2016 2017 2018 2019 2020
Electricity Generation Wood Pellets Wood Biofuels
5© Copyright 2018 RISI, Inc. | Proprietary Information
0
50
100
150
200
250
300
350
2012 2013 2014 2015 2016 2017 2018 YTD
Renewable CNG Renewable LNG Cellulosic Ethanol RFS Projected Volume
North American Biofuels Continue to StagnateUS Cellulosic D3 RINS by Type, Millions RINS
2 Domestic Pellet DemandNorth American
6© Copyright 2018 RISI, Inc. | Proprietary Information
Weather and Energy Will Continue to Act as Headwinds in the Long‐Term
400
500
600
700
800
900
1,000
1,100
Heating Degree Days by CountryAverage Annual Degree Days
United StatesCanadaLinear (United States)Linear (Canada)
0
20
40
60
80
100
120
140
160
56789
101112131415
US Pellet Stove Shipments and Retail Natural Gas Prices in New EnglandThousand Units and US Dollars (2018$) per MCF
Retail Natural Gas Prices
Pellet Stove Shipments
7© Copyright 2018 RISI, Inc. | Proprietary Information
8© Copyright 2018 RISI, Inc. | Proprietary Information
Northeastern Pellet Inventory Declines after Colder Winter, Short‐Term Uptick in DemandTotal Heating Degree Days, Thousand Tons (R)
050
100150200250300350400450
Jan-2016 May-2016 Sep-2016 Jan-2017 May-2017 Sep-2017 Jan-2018 May-20180
500
1,000
1,500
2,000
2,500
3,000
UNE Inventory UNE HDDSource: Energy Information Administration.
9© Copyright 2018 RISI, Inc. | Proprietary Information
50%
55%
60%
65%
70%
75%
80%
0.00.51.01.52.02.53.03.54.04.5
2012 2014 2016 2018 2020Capacity Demand D/C Ratio
US Continues to Face Overcapacity Issues;Colder Winters May Push D/C Ratios HigherUnited States, Million Short Tons
3 Biomass Power DemandNorth American
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11© Copyright 2018 RISI, Inc. | Proprietary Information
Policy Update: EPA Proposes Affordable Clean Energy (ACE) Rule• Proposed August 2018• Main goals Replace 2015 Clean Power Plan (CPP) Establish state‐level emission guidelines for coal‐fired power plants
• “BSER” recommends energy efficiency improvements• Unlikely to incentivize large scale co‐firing or biomass conversions
• Still makes sense to phase out coal and invest in natural gas
12© Copyright 2018 RISI, Inc. | Proprietary Information
60%
65%
70%
75%
80%
85%
90%
2012 2014 2016 2018 2020
Canada USA
Biomass Power Capacity Utilization Remains Unchanged as Policies Restrain Potential Percentage
13© Copyright 2018 RISI, Inc. | Proprietary Information
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0
2
4
6
8
10
12
14
16
2012 2014 2016 2018 2020
Canada USA US % Change CA % Change
Biomass Power Generation: Slow Growth AheadMillion MWh
4 Industrial Export DemandNorth American
14© Copyright 2018 RISI, Inc. | Proprietary Information
15© Copyright 2018 RISI, Inc. | Proprietary Information
0
2
4
6
8
10
12
2012 2013 2014 2015 2016 2017 2018 2019 2020
US South and BC Production
US Overseas Exports
CA Overseas Exports
Export Production Continues to Grow Alongside Expansion in Offshore MarketsMillion Tonnes
Shifts in Offshore Markets Will Directly Impact North American Pellet Producers
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Source: GTA* Annualized YTD through July 2018
‐200
0
200
400
600
800
1,000
2012 2013 2014 2015 2016 2017 2018*
Japanese World TradeThousand Tonnes
CanadaVietnamMalaysiaChinaOtherTotal Japanese Exports
United Kingdom
73%
Belgium7%
Japan8%
Denmark6%
Italy1%
Korea1% Other
4%
North American Pellet Export Destinations, 2018*
Source: GTA* Annualized YTD through May 2018
5 Wood Fiber SupplyNorth American
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Pulpwood Roundwood
Residual Chips
Fine Mill Residues
Hogfuel Forest Biomass
Urban Wood Waste
Pellets Electricity Generation OSB
PB/MDF Pulp
Pulp and Panels Consistently Have Higher Ability to Pay for Fiber
020406080
100120140160180200
2012 2013 2014 2015 2016 2017 2018
Fiber Paying CapabilityUS South, Pulpwood Users
US Dollars per GST
BSKPOSBExport Pellets
0
10
20
30
40
50
60
70
2012 2013 2014 2015 2016 2017 2018
Fiber Paying CapabilityUS South, Mill Residual Users
US Dollars per GST
ParticleboardWood PelletsElectricity Generation
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19© Copyright 2018 RISI, Inc. | Proprietary Information
5%
7%
9%
11%
13%
15%
0
5
10
15
20
25
30
2012 2013 2014 2015 2016 2017 2018 2019 2020US South US Northeast US West US North Central BC All CA Except BC % Total
Wood Biomass Consumed for Bioenergy Will Tick Up as Demand IncreasesMillion Dry Short Tons
Roundwood Harvest Demand: British Columbia Likely to Have Fiber Constraints in Medium Term
• With total fiber declining, will British Columbia be able to maintain its market share in offshore markets?
• How will the US South and other world players respond?
20© Copyright 2018 RISI, Inc. | Proprietary Information
0
20
40
60
80
100
120
2000 2005 2010 2015 2020
British Columbia Roundwood Harvest DemandMillion Cubic Meters, All Species
Total Harvest Allowable Annual Cut
21© Copyright 2018 RISI, Inc. | Proprietary Information
• Domestic demand is likely to be flat, with potential upsides if weather and energy prices are favorable
• Biomass power faces headwinds from lackluster policies• Demand in Europe will continue to drive North American industrial exports
Key Takeaways
Global Pellet Demand Study
22
Special Market Analysis Study
• 10‐year forecasts for industrial & domestic pellet demand
• Europe, Asia, N. America• Energy price forecasts, policy commentary, trade data
www.risi.com/globalpelletdemand
© Copyright 2018 RISI, Inc. | Proprietary Information
NEW!NEW!
Thank you for your attention!For more information:
23© Copyright 2018 RISI, Inc. | Proprietary Information
North American Bioenergy 5-Year Forecastwww.risi.com/bio5year
RISI Special Study:Global Pellet Demand Outlookwww.risi.com/globalpelletdemand
North American Woodfiber & Biomass Marketshttps://www.risiinfo.com/product/north-american-woodfiber-biomass-markets/