Name of the Project

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“Forest Biorefinery Product Design Methodology”

Virginie CHAMBOST

Research Associate

Introduction

The pulp and paper industry is facing an economic stalemate due to new market constraints, which include lower selling prices as well as increased competition and fuel costs. This new environment weakens the economic health of all Canadian paper mills. The pulp and paper industry must therefore identify new opportunities in order to define a business plan that is better adapted to current market conditions while preserving its main activity: production of pulp and paper products.

The forest biorefinery offers an interesting range of technical and commercial opportunities.

It constitutes a strategy that can no longer be ignored because it can allow the pulp and paper industry to transform itself into a competitive and innovative one. The pulp and paper industry is currently exploring these changes: some mills are gradually incorporating biorefining activities, while some mills are closely following R&D developments.

Even though process design and the elaboration of technical projects are essential to the development of a biorefining project, it is also important to evaluate strategies related to product and market diversification. The identification of commercial risks and challenges related to a forest biorefinery project is necessary in order to define optimal conditions that will allow the improvement of the Canadian pulp and paper industry’s competitiveness.

Overall Objectives

The forest biorefinery offers a wide range of potentially appealing products, from biofuels to specialty organic chemicals. Faced with such complexity, it is in the mills’ best interest to perform a strategic evaluation in order to determine which opportunities or products are worthy of commercial development. The analysis of the economic and commercial potential of each biorefinery project according to a business methodology that includes market and synergy identification will allow Canadian pulp and paper mills to optimise long-term product diversification.

The objective of my research is the development of a systematic methodology that includes a market and competitiveness analysis. This methodology will strategically reduce the offer of biorefinery products and will evaluate the expertise of the North American pulp and paper industry that is required to meet this new challenge. Using proven marketing tools, this practical methodology can be used by any mill that wishes to identify the most profitable commercialisation scenario. Such a methodology is useful for strategic business decisionmaking because it incorporates data that is generated from the process’ design.

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Potential Benefits

This practical methodology can be used by any mill that wishes to evaluate its own commercial capabilities and the economic benefits associated with the development of forest biorefinery activities.

This product design methodology allows for the rational and strategic identification of key products that should be developed in accordance wit h the mill’s location and its external environment in order to prioritize existing synergies and to establish a viable supply chain. The knowledge of markets and competitive strengths in these new markets will allow mills to optimize product diversification.

By identifying appropriate and specific strategies, a pulp and paper mill will be able to evaluate risks and uncertainties related to their own biorefinery project.

This methodology is a systematic tool that can be used to define a new business plan that is specific to each mill and that can be used in process design.

Methodology

This methodology is structured in two main analyses:

1. General analysis of product potential derived from the forest biorefinery

Using two effective marketing tools, this analysis requires a thorough study of market opportunities for each product.

The

SWOT tool

(Strengths, Weaknesses, Opportunity and Threats) allows for the identification of commercial opportunities that are related to each product, as well as the identification of threats that are present in the market and the evaluation of the industry’s strengths and weaknesses with respect to said-product. This analysis generates a list of risks and uncertainties, but also identifies the benefits related to the development of each product. From this study, products that are deemed unworthy of commercialisation in the pulp and paper industry are strategically set aside.

Using a

competitiveness analysis

of the pulp and paper industry’s capability in the development of a new product range and in the penetration of a new market, a selection of the most appropriate products can be validated. This competitiveness analysis is conducted in three levels: o

Canada vs another country

: Canada’s national advantages in the development of specific products compared to other countries. o

Pulp and paper industry vs another industrial sector: the competitiveness of the pulp and paper industry in the development of a product compared to another sector, such as agriculture. o

A pulp and paper mill vs another mill: the specific benefits that are related to a particular mill when faced with another mill for the development of a specific range of products.

In order to perform this analysis, the definition of competitiveness criteria is primordial and requires the input of a panel of key experts from different areas. The result of this

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competitiveness analysis is a comprehensive list of products that are development-worthy for the Canadian pulp and paper industry from a commercial point of view.

The two analyses that are grouped in the general part of this methodology have to be validated by production scenarios that are first defined by engineers. According to the wood volume that enters mill A, we are able to follow the different transformation paths in order to estimate and quantify the different products that are generated by biorefining activities, while maintaining the production of pulp and paper as a key activity. As such, technically feasible product categories are defined.

The use of this notion in our general analysis allows us to approach the forest biorefinery on a case-bycase basis, thus taking into consideration the projects’ technical feasibilities and the benefits related to coproduction. The opposition between production scenarios and our market and competitiveness analysis for each product allows us to reduce the opportunity potential to those product families that are the most interesting for the North American pulp and paper industry.

2. Specific analysis for each mill in order to determine which product range is worthy of development

Using an analysis of investment capabilities, each mill will be able to identify the economic potential in the incorporation of a new product range in the life cycle of existing products. A

BCG analysis

that allows a close link between investment capability and life cycle analysis of existing products results in the characterization of the current investment strategy and in the definition of investment relocation strategies to strengthen the development of a new product range. Finally, using a

specific market analysis

, the positioning of the range of new products can be defined according to the Four P’s (Product, Price, Place, Promotion). Scenarios for market/commercialisation penetration can therefore be identified in order to optimize strategic decision-making.

This methodology is based on proven marketing tools. Many case studies will be performed in order to give this methodology credibility.

Preliminary Results

So far, this methodology has been generally defined and approved in oral presentations during various meetings and conferences.

The methodology has been presented at four congresses in Canada and the United

States.

The steps required in the construction of different methodological tools have been defined and planned.

The general part of this methodology is currently applied to the example of ethanol production. The SWOT analysis has been performed and the main competitiveness

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Figure

criteria have been identified.

Set of all products possibilities

Generic

Product

Methodology

Adaptation to

P&P Sector

SWOT Analysis

Competitive Analysis

Monitoring the internal (Strengths/

Weaknesses) and external (opportunties/

Threats) marketing environment

Identifying competitive environment to allow a better understanding of what products we should not offer, what strategies will provide us a distinct advantage to prevent competitiion on the market

Set of refined products for mills

Accounting for..

Typical Production

Scenario

Specific product

Methodology

Adaptation to one mill...

BCG, Portfolio Matrix

« Growth-share matrix » to assist in deciding how to allocate cash among business units and how to improve portfolio management

Market Analysis

Strategic tool to create perceived value and to ensure competitive market position by implementing Marketing Mix strategy based on Product, Price, Place and Promotion

Set of attractive products for one mill

Future Work

Completion of the analysis of the ethanol case (general part: SWOT and competitiveness analysis).

The competitiveness analysis that is based on the ethanol case will be defended in front of a panel of experts in order to determine the general and specific criteria required for this study.

The general part of our methodology will also be used for the analysis of other products that can be generated in a forest biorefinery, such as different product lines of chemicals.

A case study will be conducted in upcoming months in order to validate the specific part of our methodology.

The analysis’ general and specific conclusions will be published.

Many publications are planned in order to present an overview of the product design

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concept in a forest biorefinery and to present our methodology.

The methodology will be entirely validated by the end of 2007.

References

STUART, P., “The forest biorefinery: survival strategy for Canada’s P&P sector?”,

Pulp & Paper

Canada

, 107(6):13-16 (2006)

“Forest Product Industry Technology Roadmap”, special project for the AF&PA, prepared by

Agenda 2020 Technology Alliance, July 2006

AXEGÅRD, P., “The future pulp mill – a biorefinery”, Presentation at 1 st

International Biorefinery

Workshop, July 20-21, Washington DC (2005)

WERPY, T., PETERSON, G., “Top value added chemicals from biomass feedstock – Volume I:

Results of screening for potential candidates from sugars and synthesis gas”, US Department of

Energy, August 2004

COOPER, R.G., “Winning at new product: accelerating the process from idea to launch”, London,

Perseus Publishing, 2001, 416 pages.

PORTER, M. E., « On competition », Harvard Business Review Book, :77 (1998)

STEPHANOPOULOS

, G., “Towards a Product-Centered Chemical Industry - Rethinking the Role of R&D and its Interaction with Marketing and Business Strategy

” FOCAPD (2004)

WISING, U., STUART, P., “Identifying the Canadian forest biorefinery”,

Pulp & Paper Canada

,

107(6):25-30 (2006)

PERINE, L, “Integrated Forest Products Biorefineries: agenda 2020/US Industry Vision and

Strategy”, Energy Efficiency and CO2 Emission Reductions in the Pulp and Paper Industry: Focus on technology System, Paris, 9 October 2006

DUBOIS, P-J., JOLIBERT

A., “Le Marketing : Fondements et Pratique”, Paris, Economica, 3 rd edition, 1997, 928 pages.

SAIN, M., CSChE-Sponsored Biobased Industry Workshop, 23 October 2006

MORROW, W., GRIFFIN, W., SCOOT MATTHEWS, H., “Modeling switchgrass derived cellulosic ethanol distribution in the United States”,

Environmental Science & Technology

, 40(9): 2877-2886

CLOY, BW., O’CONNOR, DV., “Wood-ethanol opportunities and barriers”, Prepared for the Forest

Sector Table , February 1999

MABEE, W.E., Saddler, J.N., “The potential of bioconversion to produce fuels and chemicals”,

Pulp & Paper Canada

, 107(6):34-37 (2006)

TOWERS, M., BROWNE, T., SUART, P., PARIS, J., “Biorefining: the P&P industry in transition”,

The 6 th

International World Energy System Conference, Torino Italy - July 2006

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LARSON, E., CONSONNI, S., KATOFSKY, R., J. FREDERICK

“A cost-benefit assessment of gasificationbased biorefining in the Kraft pulp and paper industry”,

Princeton Environmental

Institute,

Final Report (4 volumes), December 2006

PROCTER, A., “Biofuels : a trend that may begin to influence energy markets”,

P&P Canada

,

106(10):27 (2005)

PERVAIZ, M., SAIN, M., “Biorefinery : opportunities and barriers for petro-chemical industries”,

P&P Canada

, 107(6): 31-33 (2006)

GRADO, S., CHANDRA, J., “A factorial design analysis of a biomass to ethanol production s ystem”,

Biomass and Bioenergy

, 15(2):115-124 (1998)

VAN HEININGEN, A., “Converting a kraft pulp mill into an integrated forest biorefinery”, P&P

Canada, 107(6):38-43 (2006)

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