Biomass Energy &
Wood-Based Bio-Fuels
What is the New Supply Model?
9 October 2007
Kevin Kingg
Empire State Forest Products Association
Eric Kingsley
Innovative Natural Resource Solutions LLC
New York’s Forest Industry
• 61,000 employed in forest products
manufacturing
– Another 3,000 employees in forestry & logging
• $3.7 billion contribution to Gross State Product
• $430 million annual capital investment
• A leading manufacturer of hardwood lumber
– In 2000, produced over 467 mmbf of hardwood
lumber
1
New York’s Forest Resource
(Source: 2004 USDA Forest Service FIA Summary)
• 18.4
18 4 million acres of forestland
– 14.2 million acres (77%) in private ownership
– 15.8 million acres (86%) classified as “timberland”
• All above ground biomass = 971 million dry tons
(about 1.8 billion green tons)
– 71% in “bole”
bole wood
– The rest in stumps/tops/branches, seedling/sapling, or nongrowing stock
– Would convert to about 78 billion gallons of ethanol, or
roughly one half of annual U.S. gasoline consumption
Forest Biorefineries, Wood Energy
• Will need to find a way to integrate and
build upon existing industry
• Is reliant upon all the supply chain –
landowners, loggers, foresters, truckers,
mills, etc.
• Policy issues important to most ESFPA
members will be important to this industry
• Will be (are) wholly reliant on others for
feedstock
– Unlike paper mills when built, which had land
to serve as resource base
2
Sawmills
• Producing high-value
high value products,
products enabling
landowners, foresters and loggers to make
money from owning, managing and
harvesting
• Products range from pallets to structural
lumber to furniture
• Health of this industry important to
harvesting infrastructure
New York Hardwood Sawmills
3
New York Softwood Mills – well
distributed, not as much production
New York’s Existing Users of Low Grade Wood
Will Biorefining be compatible with existing industry?
4
Where Will the Wood Come From?
Large Volumes of Wood Could be Needed
2,000 Dry Tons per Day =
~1.2 million green tons per year or 123 truckloads every day
A High-Volume Harvesting System
Can Cost over a Million Dollars
Feller Buncher
Grapple Skidder
Stroke Delimber
Providing stable markets to support this key to new investment
5
Will new types of equipment be needed?
If so, what will work in New York woods?
Feedstock transport, handling and storage
are important parts of industry success
6
Large blocks of land or large harvests
important to managing harvest costs
Moving Cost per Ton vs Harvest Volume (tons)
$4.00
Assumptions:
$3.50
Moving Time = 12hrs
Lowbed Cost per Hour = $70
Fixed Moving Cost = $840
Moving
g Cost per Ton
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
0
500
1000
1500 2000
2500 3000
3500
4000
4500
5000 5500
6000 6500
7000 7500
8000
Harvest Volume (Tons)
Maintaining and Building New York’s
Biomass Harvesting Infrastructure
• Maintain the land base and large
ownerships – tax policy, markets
• Maintain and grow high-value markets –
sawmills
• Provide economic opportunity for
l d
landowners
andd loggers
l
• Integrate with existing markets
• Addressing sustainability issues before
others do
7
New York has an Excellent Hardwood Resource
Percent of Standing Timber (cu. ft.) HW by county
8
New York has forests dense with hardwoods
(cubic feet of hardwood per acre in a county)
Challenges for New Large Biomass Facilities
• Breakingg into a difficult marketplace
p
– Constrained wood availability (?)
• High capital costs
• Limited size of facilities
– constrained by transport cost for low-value,
high moisture wood
• Lack of transparent wood market
• Instability of public policy
– new plants built in part on public policy
9
Project:
Establishing Long-Term Supply
Agreements for Wood Energy Facilities
•
•
•
•
•
Empire State Forest Products Association
Innovative Natural Resource Solutions LLC
Sustainable Energy Associates
Antares Group
Funding from:
– USDA Forest Service
– NYSERDA
Biomass Challenged by Two Myths
The Myth of Free Wood –
a belief
b li f on the
th partt off some developers
d l
that
th t
wood should be free or close to free –
thinking of it as waste (residue), not as a
product that has embedded costs
Reality: The growing, harvesting, skidding,
processing and transport of wood has costs.
10
Biomass Challenged by Two Myths
The “Oil Sheik” Landowner –
•
landowner or supplier belief that energy
projects will be able to pay “unlimited” prices for
wood, as energy is highly valuable
Reality: What users can pay is limited by the laws
of physics (a tons of wood contains only so much
energy), the market (the product is worth only so
much), and the need for the processor to make a
reasonable profit.
1 Green Ton of Wood
1 truck = ~30 green tons
• 1
1.7
7 MWH of
electricity
• 40 gallons of ethanol
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Feedstock Costs
Wood Cost
(Delivered)
Electricity
($ per kwh)
Ethanol
($ per gallon)
$
10
$ 00.017
01
$
0.25
02
$
20
$ 0.034
$
0.50
$
30
$ 0.051
$
0.75
$
40
$ 00.068
068
$
1.00
1 00
$
50
$ 0.085
$
1.25
Does not include operations & maintenance, debt service, profit
Electricity ~ $0.055, Friday’s CBOT Ethanol $1.58
Wood and Oil Prices,
1995 – 2006
Wood (Northern NH)
Oil
30
80
70
30
20
Oil ($/barrel)
50
40
20
10
06
05
06
3Q
1Q
04
05
3Q
1Q
04
3Q
03
03
3Q
1Q
02
02
1Q
3Q
01
1Q
01
3Q
1Q
00
99
00
3Q
1Q
99
3Q
98
98
1Q
3Q
97
1Q
96
97
3Q
1Q
3Q
1Q
96
0
95
15
3Q
Wood ($/ton)
60
25
Data Sources: NHTOA Timber Crier, US DOE Energy Information Agency
12
$ per ton (wood) / $ per barrell (oil)
Wood and Oil Prices ,
Trend Line 1995 – 2006
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
06
3Q
06
05
3Q
1Q
05
04
3Q
1Q
04
03
3Q
1Q
02
03
1Q
3Q
01
02
1Q
01
3Q
00
00
1Q
1Q
3Q
99
99
1Q
3Q
98
98
1Q
3Q
97
97
3Q
1Q
96
96
1Q
3Q
3Q
95
0
Data Sources: NHTOA Timber Crier, US DOE Energy Information Agency
Wood Supply is a Critical Piece
of Biomass Projects
• Can represent ~80% of operating costs
• No
N ttransparentt market,
k t no futures
f t
market
k t
• A disconnected supply chain (landowner,
loggers, truckers)
• A belief on the part of suppliers that prices will
ggo up,
p and a reluctance commit to ppricingg
• Inability of suppliers to accurately forecast and
hedge their price structure
• Suppliers are small and don’t meet institutional
credit guidelines
13
Addressing Wood Supply
• Project goal to find ways that suppliers
and projects developers can work
together to make projects happen
• Models that meet the needs of all parties
• Address forest sustainabilityy issues
• Develop a model that can be used in other
regions, in other parts of the forest industry
Process - 1
• Interviews with a sample
p of suppliers,
pp
,
developers and financial institutions
• Interviews are (just) now underway
• In-depth conversation – about 20 minutes
14
Process - 2
Evaluate options
A.
B.
C.
D.
E.
Biomass futures market
Shared reward contracts
Supplier cooperatives / resource pooling
Harnessing other futures markets
Direct partnership
Process - 3
• 1 day workshop including suppliers,
developers, financers
• Bring all interview participants together
• Discuss options,
p
findings,
g
recommendations
• Seek feedback / input / ideas
15
Process - 4
Develop a path forward
• Core idea(s)
• Business plan
• Partners
• Funding
Innovative Natural Resource Solutions LLC
107 Elm Street, Suite 100-E
Portland, ME 04101
207/772 5440
207/772-5440
Kingsley@inrsllc.com
Empire State Forest Products Association
828 Washington
g
Ave.
Albany, NY 12203
518/463-4200
kking@esfpa.org
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